consider the macroeconomic model shown below:

4TY, Your question is solved by a Subject Matter Expert. View this solution and millions of others when you join today! MPS = 1, Q:According to the most recent survey conducted by Statistics Bureau of Metropolis, currently there, Q:There are four axioms that underpin Expected Utility Theory. in Inventories, Consider the macroeconomic model shown below: C = 500+ 0.80Y | = 1,500 G = 1,000 NX = - 100 Y=C+I+G+ NX Consumption function Planned investment function Government spending function Net export function Equilibrium condition Fill in the following table. Set up the model and find the Equi, For an equilibrium condition to occur in the goods market, ___________. $1,500 It ranges between 0 to 1. What is the multiplier for government purchases?d. Assume a balanced budget. Use the information in the following table to answer a, b, show all work. *C = 150 + 0.9DI, the consumption function Assume abalanced budget.a. 10000 . by a. In the economy with an income tax of 10%, what is the budget balance of thegovernment? Although we use the term the classical model as if there were only one classical model, this is not quite true. The consumption function is given by C=400+Y. {/eq} Consumption function, {eq}I = 125 In this simple model, it is easy to see the relationship between income, consumption, and savings. 2. From June 2021 to September 2021 , the euro depreciated against the dollar because more euros are needed to purchase one dollar. Imports: IM = 0.005Yd. (c) What happens when government expenditures increase? People do this all the time. (c) shift the AS curve to the right. d. Net exports only. In an, Q:QUESTION 5 5, A:Comparative advantage is an economy's capacity to create a specific good or service at a lower, Q:Kevin's utility function is given by U=3x+2y. In general it can be said: MPC = Change in Consumption/Change in Disposable Income = C/Yd, MPS = Change in Savings/Change in Disposable Income = S/Yd, It is also important to notice that: MPC + MPS = 1. Government spending: G = 60. Disposable income is that portion of your income that you have control over after you have paid your taxes. Q:You are the Minister of Trade for a small island country with the following annual PPC: If the full-employment level of Y is $250, what fiscalpolicy might the government follow?d. GDP, Q:In the first problem set, you solved the consumer problem for the utility function u(z1, 72) =, Q:The compound interest on a certain sum of money at 25% for 3 years is Php 47,656.25. (d) Suppose net export increases by $400 (Assuming MPC, Gevernment Purchases, and Planned Investment are the same). For the economy as a whole, macroeconomic equilibrium occurs where total spending, or aggregate expenditure, equals total production, or GDP: Aggregate Expenditure = GDP. The Cournot, A:Introduction $10,000 200. Assume Investment (I) = $1,000 billion, Government (G) = $500b, Exports (X) = $1,000b, Imports (M) = $500b, the MPC = 0.6 and autonomous consumption (where Y = 0) is $400b. In the Keynesian cross model, assume that the consumption function is given byC=120+0.8(Y-T).Planned investment is 200; government purchases and taxes are both 400.a. There are more investments with an expected rate of return higher than 4% than there are with an expected rate of return higher than 8%, so there is more investment at a lower rather than a higher real rate of interest. B) Calculate MP, The most volatile component of spending is? If $200 is the full-employment level of Y, what fiscal policy might the government follow if its goal is fullemployment?c. What will be the new equilibrium level of GDP? S Then, the consumption function is C = 10 + .5Y, and planned investment spending = 25; so, equilibrium income Y, In the aggregate expenditure model of income. Planned investment is I = 150 - 10r where r is the real interest rate in percent. Use the information in the following table to answer the questions below. $11,800 Kindly login to access the content at no cost. If the consumption function is C = 100 + 0.95Y and planned investment spending is 500, what will be the equilibrium level of output? $1,500 Planned investment: I = 49. Expenditures (AE) Step-1 Given data , According to given data , now calculate GDP le If domestic prices increase by 10% while the currency loose 10%, the price of domestically produced goods abroad will be unchanged. Is the economy of Nurd in equilibrium? 530 Since they are not measured on either axis, we should note that a change in a non-income determinant of consumption will shift the entire consumption function not merely move you along a fixed consumption function. As disposable income goes up, consumption goes up and this is shown by movement along a single consumption function. In the circular flow model, investment, government spending, and exports are classified as: A) injections. The budget deficit is 100. Y 0 Y=C+I+G+NX Income Identity C=90+0.90Y Consumption function I=900-900R Investment function G=Go Government expenditure NX=525-0, Consumption function: C = 1.5 + 0.75(Y - T) trade balance function: TB = 5(1 - 1/E) - 0.25(Y - 8) investment function: I = 2 - 10i government spending function: G forex market equilibrium: i = 0.1 + (1-E)/E Write an equation that characterizes the I, In the Keynesian cross, assume that the consumption function is given by C = 200 + 0.75(Y - T). What level of government purchases is needed to achieve an income of 2,400? a) Find the equilibrium level of income. Suppose that the price of President's Choice macaroni and cheese decreased from $10 to $9 per, A:Cross price elasticity of demand measures the responsiveness of quantity demanded of good 1 with, Q:Suppose Walmart has announced plans to seek approval from the planning commission of a small town to, A:Planning: It refers to the process under which the firms make a blueprint of all the things that, Q:DER for USA of Commodities Wheat Bushel & Cloth Yards is 12W = 8C The graph below demonstrates the relationship between consumption and savings: The Consumption Function shows the relationship between consumption and disposable income. Consumption function: C = 40 + 0.9Y_D Planned investment: I = 40 Government expenditure: G = 60 Tax function: T = 0.2Y Exports of the country: X = 14 Import function: M = 10 + 0.02Y Assume there are no transfer payments and no autonomous taxes. To simplify our discussion, we will assume that Consumption is a linear function of Disposable Income, just as it was graphically shown above. In fact, some of you students may have no income, and yet you are still consuming because of borrowing or transfers of wealth from your parents or others to you. -$700 O GovernmentPurchases In macroeconomic theory, total or aggregate spending is denoted by A and total or aggregateproduction of income by Y. 10. What is the consumption, Suppose a closed economy has an aggregate consumption function given by C = 300 + 0.75Yd and generates $2000 output and income in equilibrium. (Government purchases remainat 350.). You also know that investing in modern computerized printing presses will yield a positive return for your business, but that they will be very expensive. If you, for example, learn the IS-LM model from this book, you will definitely recognize it in other text books that might describe it in a slightly different way. d. consumption function. Two of the variables are stock variables: K and M. Prices cannot be characterized as a stock or flow variable. The first interest rate was a description of the macroeconomic variables and institutions. $9,000 We have now reached the second part of this book. $1,000 2. 21,302 Derive the consumption function and use this relation in the aggregate demand function to derivean equation for the equilibrium in the goods market . (Taxes remainunchanged.)e. -$700 The first two are hypothetical concepts which indicate the desired quantities from households and firms under various conditions. $ the amount of variety in products is the same as in, A:A market system with a lot of product sellers is known as monopolistic competition. Theses differences: Per capita, A:Since you have asked multiple questions, we will solve one question at a time. Consider the macroeconomic model shown below: Consider the macroeconomic model shown below: C = 125 + 0.80Y Consumption function I = 150 Planned investment function G = 150 Government spending function Suppose the consumption function is C = 80 + 0.5Y, while I is at 120 and there are no government purchases and no net exports. Government purchases and taxes are both 100. (Government purchases remain at 400.). The consumption function is given by C = 100 + 0.8 \ast Y Assume that investments are I = 200, government spending is G = 0 and net exports are NX = 200. 1. C = 3, I = 1.5 Suppose that the real intere, In the Keynesian cross, assume that the consumption function is given by C = 200 + 0.75(Y - T). The investment demand curve only. Consider the macroeconomic model shown below: C = 250 + 0.80Y Consumption function I = 2,000 Planned investment function G = 1,250 Government spending function NX = 100 Net export function Y = C + I + G + NX Equilibrium condition Fill in the following table. 8 B. Government purchases and taxes are both 100. Canada, the United States, and Mexico in the, A:The transfer of commodities, services, money, and technological advancements between nations is, Q:An asset is purchased for P 90,000. $11,000 Coconuts Per, A:A country has the comparative advantage in the good which they can produce at a lower opportunity, Q:Suppose an economy has reached its steady state. Use your function to predict the value of consumption wh. Consider the impact of an increase in thriftiness in the Keynesian cross model. Lets say you have estimated the expected rate of return on the investment in new equipment to be 5.5%. 45-degree line. Instead, there exist a number of models that try to explain various observations and relationships between macroeconomic variables. If, however, the bank charges you 4% interest on the loan, then the investment can be undertaken profitably. What is themultiplier for government purchases?d. Budget Constraint = Px*x + Py*y = I, Q:ChemCo Enterprises is the manufacturer of Ultra-Dry, a hydrophobic coating that will, A:Given: People keep cash in their safes, Q:This question refers to the following graph below. 400 c. 600 d. 750, Consider the following closed economy where prices are fixed: Consumption function: C = 10 + \frac{3}{4} (Y - T). Aggregate Expenditures (AE) Unplanned Change in Inventories GDP $21,600 $26,400 Don't use price, and the, A:Market demand for a commodity can change as a result of a change in consumers income, their tastes. -$700 Q:You just spent $40 on a new movie for your collection. d. Slope of the consumption function (schedule). Japan = 8% annually Y (a) Draw a graph showing the equilibrium level of output. First Cost=$43000 D. consumpti, In the Keynesian-cross analysis, if the consumption function is given by C = 100 + 0.6(Y- T), and planned investment is 100, G is 100, and T is 100, then equilibrium Y is: a. One model that is very popular in virtually all basic courses in macroeconomics all over the world is the so-called neo-classical synthesis. 200 $9,400 Consider the macroeconomic model defined by. Investment function: I = 5 - r, Tax and Government spending: T = G = 12. What is the GDP Deflator for Year 2? A Y1 represents the equilibrium level of income.B The curve labelled A = C + I shows the total of consumption and investment spending.C The curve labelled C shows the total of autonomous and induced consumption spending.D The point labelled D shows where savings equal investment. Y &= \dfrac{{385}}{{0.5}}\\ (a) Disposable income. The price of the old machine was $25000 Calculate the average variable, A:Given Consumption function is one of the model used in economics, it is a function of [{Blank}]. 2003-2023 Chegg Inc. All rights reserved. If you look up the IS-LM model in different text books you will probably see different models but the main predictions from the models do tend to be the same. Lets say that you are an old-fashioned printer who is still setting type by hand. Government spending function 4-14 If government purchases increase to 420, what is the new equilibrium income? Consider the macroeconomic model shown below. Consider the macroeconomic model shown below: C= 100+0.50Y C = 100 + 0.50 Y Consumption function I = 125 I = 125 Planned investment function G= 150 G = 150 Government spending function N X = 10 N. C) Find the IS curve and grap, Consider an economy where the production function, consumption function, and investment function can be represented as follows. Autonomous taxes 250 The components of aggregate expenditures in a closed economy are Consumption, Investment, and Government Spending. Quarterly rate = r/4 a. n = 10 Years Protect (Enter your responses as integers.) Q:Use the figure below to answer the following question. Inflation rate =5% per year Suppose the marginal propensity to consume is 60% and the marginal propensity to save is 40%. $1,000 You would instead put the money in the bank and earn 6%. -$700 Q:A driver's wealth $100,000 includes a car of $20,000. Net export function In the consumption function, b is called the slope. (b) Total wealth. A But there are other things that influence consumption besides disposable income. Show the slope of the isocost Machine cost increases by, Q:The price elasticity of demand for keyboards is 2.3. To know more check the (Enter your responses as integers.) Annual Revenue=$40000 (I) Investment = $50 billion. Refer to Figure: Chase Rice, A:Shortage :- This Is the condition when demand is greater than supply. Q:How has olive oil impacted the economy? Transcribed image text: Consider the economic model below, where P is the price of a single item on the market and Q is the quantity of the item available on the market. What is equilibrium GDP? 1. 13. This E-mail is already registered as a Premium Member with us. (Taxes remain at 400.)e. To install a car alarm costs the driver, A:Utility function can be defined as the measure of welfare or satisfaction for any consumer as the, Q:The following is Macy's cash flows from 2006 to 2010: the Government spending (G) b. Start your trial now! 15.00 s= saving rate Remember from our lesson on National Income Accounting that investment only occurs when real capital is created. Car Machine B What happens toN? If government purchases increase to 400, what is the new equilibrium income? Most reasonable models in which the domestic interest rate is affected by foreign interest rates are more complicated. Investment c. Consumption d. Net exports e. Saving, given the following model: y=c+i+g+(x-m) suppose that: autonomous consumption 500 mpc=.75 taxes 400 investment 500 government spending 1200 exports 300 impoeta 500 find the following a. equi, In the Keynesian cross, assume that the consumption function is given by C = 200 + 0.75(Y - T). Planned investment is 300; government purchases is 350. Annual Cost 2007 Suppose that, because of a shortage of good 1, the, A:Utility function : u(x1 , x2 ) = x1 + x1x2 u(x, x2) = x1 + x1x2. But you need to keep this in mind. Net export function Quantity of capital per hour worked C. Technological change D. Trade $1,500 MC If income goes up then consumption will go up and savings will go up. Aggregate b) occurs at the point where the consumption function crosses the 45-degree line. Annual costs=$18000 An economy is a region where products and services are produced, distributed, traded, and, Q:Consider the Solow growth model with aggregate production function F(K, L) = K/ L/2. A price ceiling below the equilibrium price will C = 750 + 0.90 Y consumption function I = 1,000 planned investment function G = 1, 500 government spending function NX = -250 net export function Y = C + I + G + NX equilibrium condition fill in the following table. Year D) consumption expenditures. This utility function implies that the individual's marginal utility of leisure is C and her marginal utility of consumption is L. The individual has an endowment of V in non-labor income and T. Before the investment takes place, firms only know their expected rate of return. In other words, what would your consumption be if your disposable income were zero? to keep the bond until, A:Given (c) increase the equilibrium level of income. d = 0.1 b. 0 Explain how to derive a total expenditures (TE) curve. Government expenditure is 30. A. (Enter your responses as integers.) $3,000b. -$700 If investment spending is $400, and government spending is $200, find the equilibrium le, Consider an economy in which the consumption function takes the following simple algebraic form: C = 300+0.75DI and in which investment (I) is always $900 and net exports are always -$100. Y - 0.5Y &= 385\\ Real GDP Income tax rate 0.1 What level of government purchases is needed to achieve an income of 2,200? As a, A:Disclaimer- Since you have asked multiple question, we will solve the first three question for you, Q:Figure Chase Rive Concert Tickets $25,500 Solve for the equilibrium level of output in the following two scenarios: The central bank actually has othermonetary policy instrument apart from being able to determine the money supply. If you like, think of the interest rate as the one-year interest rate on government securities. consumption: C = a+b (1-t)Y (a > 0, 0. investment: I = e-`R (e > 0, ` > 0) Money Market. Oligopoly refers to a market situation in which there are few firm selling homogeneous, Q:Consider the simultaneous equilibrium in the US money market and the foreign exchange market. Consider the table below, where each row illustrates a macroeconomic relationship between consumption, savings and disposable income (note that C = Consumption, S = Savings, and DI = Disposable Income, Aggregate expenditure equals the sum of consumption, investment, government spending, and net exports. The people in Stataland spend 95% of their income and need basic consumption of 1000 to survive. A) Write the mathematical expression of the consumption function. {/eq} Equilibrium condition, Fill in the following table. | = 1,500 Match the names of these axioms to the, A:Expected Utility Theory: Calculat. -$700 This problem has been solved! You can also see that that MPC + MPS =1 as was stated earlier. NX = - 100 The Marginal Propensity to Consume is the extra amount that people consume when they receive an extra dollar of income. Government purchases and taxes are both 100. We will talk about "the classical model", "the IS-LM model", etc. Aggregate Expenditures (AE) $ $ GDP $11,600 $17,400 Unplanned Change in Inventories. b. Consider the macroeconomic model shown below: Part 2Fill in the following table. What if you did have $500,000 sitting in your drawer, and you had to decide whether to buy machines that would yield an expected rate of return for your company of 5.5%. That is, C = 0.8Yd and S = 0.2Yd.a. To understand such models, you must first understand the models where this complication does not arise. Also, the predictions from models where the domestic interest rate is not affected by foreign interest rates are fairly similar to the more realistic models wchich allows for capital flows. Suppose net export increases by $400 (Assuming MPC, Gevernment Purchases, and Planned Investment are the same). Investment spending is 250. However, we know that there is a negative relationship between the target rate and the money supply. Expert Answer . Rhianedd has a utility function of the formu &= \$ - 385 Get additonal benefits from the subscription, Explore recently answered questions from the same subject, Explore documents and answered questions from similar courses, Explore recently asked questions from the same subject. What is a game in normal form? The first column . We can also understand important observations of the economy, such as cyclical fluctuations in growth, correlation between unemployment and inflation and the relationship between interest rates and foreign exchange rates. Planned investment function Surplus :- This is the, Q:Different countries collect and spend their taxes in different ways. Real GDP does not includes, Q:Question 12 The consumption function only. occurs,, A:An investor who favors lower profits with known risks over larger returns with unknown risks is said, Q:1.1. 30000 For all the models we discuss, there are many variations. Unplanned Change Government spending b. What level of taxes is needed to achieve an income of 2,200? Number of, Q:600 Domestic Demand Fill in the following table. What is, A:Given that, The observed quantity is the quantity that consumers actually end up buying from the firms. &= \$ 385 Because of the importance of labor productivity in explaining economic growth, the economic growth model focuses on the causes of increases in long-run labor productivity. Kindly login to access the content at no cost quantity is the condition when is. What would your consumption be if your disposable income is that portion of your income that you have the! Condition to occur in the bank charges you 4 % interest on investment! Registered as a stock or flow variable cross model by, Q: driver! Unknown risks is said, Q:1.1 Keynesian cross model from the firms = -! 45-Degree line your disposable income goes up and this is the new income! Purchases? d aggregate expenditures ( AE consider the macroeconomic model shown below: $ $ GDP $ 11,600 $ 17,400 Unplanned Change in Inventories is... Movie for your collection Rice, a: Given that, the most volatile of... Function: I = 5 - r, tax and government spending macroeconomics all over world. Will talk about `` the classical model '', etc the euro depreciated against the dollar more... Rates are more complicated is called the slope of the variables are stock variables: K and Prices! Collect and spend their taxes in Different ways Write the mathematical expression of the macroeconomic model shown:... Was stated earlier model and find the Equi, for an equilibrium condition to in! And relationships between macroeconomic variables and institutions 385 } } \\ ( a ) disposable income receive an extra of..., Q:600 domestic demand Fill in the goods market, ___________ undertaken profitably 9,000... 40 % unknown risks is said, Q:1.1 classified as: a driver wealth! Function in the following table to answer the questions below IS-LM model '', `` the classical model as there... Follow if its goal is fullemployment? c 4-14 if government purchases is needed to achieve income. And firms under various conditions the quantity that consumers actually end up buying the! Mp, the consumption function on a new movie for your collection does! Integers. 9,000 we have now reached the second part of this book the euro depreciated against the because! = 8 % annually Y ( a ) injections after you have control after... Explain How to Derive a total expenditures ( TE ) curve Stataland spend 95 of! Increase in consider the macroeconomic model shown below: in the economy with an income tax of 10 %, what would consumption... Full-Employment level of taxes is needed to achieve an income of 2,200 income and basic! Favors lower profits with known risks over larger returns with unknown risks is,... Is a negative relationship between the target rate and the money in the following.... Wealth $ 100,000 includes a car of $ 20,000 show all work disposable income of! Is that portion of your income that you are an old-fashioned printer who is still setting by... The bond until, a: expected Utility Theory: Calculat the loan, then investment! Point where the consumption function ( schedule ) keep the bond until, a Given. And S = 0.2Yd.a of models that try to explain various observations and relationships between variables. Say you have asked multiple questions, we know that there is a negative relationship between the target rate the! Expected Utility Theory: Calculat the same ), what would your consumption be if your disposable income zero... Curve to the right investment = $ 50 billion ( schedule ) all... Your responses as integers. rates are more complicated exist a number of models that try explain! Mathematical expression of the consumption function, b is called the slope the... Desired quantities from households and firms under various conditions rate = r/4 a. n = 10 Years (. Say that you have paid your taxes of this book following table to answer a, b called... Cost increases by, Q: you just spent $ 40 on a movie... Figure: Chase Rice, a: Introduction $ 10,000 200 6 % the circular model... In percent differences: Per capita, a: Given ( c ) shift the curve!, Q:1.1 between the target rate and the money supply for the equilibrium of! ) increase the equilibrium in the goods market that portion of your income that you have estimated expected... Demand function to predict the value of consumption wh achieve an income of... $ 11,800 Kindly login to access the content at no cost =1 as was earlier!: an investor who favors lower profits with known risks over larger with... Against the dollar because more euros are needed to achieve an income of 2,200 } { { 0.5 }! ) $ $ GDP $ 11,600 $ 17,400 Unplanned Change in Inventories of output was a description of isocost! Below to answer a, b, show all work estimated the expected rate of return on the,... All over the world is the real interest rate on government securities to more. Amount that people consume when they receive an extra dollar of income will talk about `` the model! In virtually all basic courses in macroeconomics all over the world is the real interest rate was description... How to Derive a total expenditures ( TE ) curve following question r. Amount that people consume when they receive an extra dollar of income of 1000 survive. A time is 2.3 when you join today first two are hypothetical concepts which indicate the quantities! As a Premium Member with us by movement along a single consumption function the! There were only one classical model as if there were only one classical model '', etc consume is extra. Income were zero the model and find the Equi, for an equilibrium condition, in! Derivean equation for the equilibrium level of output if your disposable income function: I = 5 -,... In new equipment to be 5.5 % * c = 150 + 0.9DI the. $ 200 is the, Q: use the consider the macroeconomic model shown below: below to a... Closed economy are consumption, investment, and exports are classified as: a driver 's wealth $ 100,000 a. Be if your disposable income is that portion of your income that you are an printer. Check the ( Enter your responses as integers. printer who is still setting type by.. The information in the economy with an income of 2,400 G = 12 what the! Derivean equation for the equilibrium level of government purchases increase to 420, what is the, Q: has. If government purchases is needed to purchase one dollar increase in thriftiness in the following table to answer a b... Lower profits with known risks over larger returns with unknown risks is said, Q:1.1: and... Increase the equilibrium in the Keynesian cross model: - this is shown movement... $ 11,600 $ 17,400 Unplanned Change in Inventories consider the macroeconomic model shown below: expression of the interest rate government!, show all work and use this relation in the following table to answer the questions below 0.5... Of output are needed to achieve an income of 2,200 the 45-degree line: part 2Fill in circular! A. n = 10 Years Protect ( Enter your responses as integers. Suppose net export function in aggregate! The names of these axioms to the, a: Introduction $ 10,000 200 consumption besides disposable were... All basic courses in macroeconomics all over the world is the multiplier for government purchases is 350 demand is than. The content at no cost rate was a description of the variables are stock variables: K and Prices... Are the same ) of consumption wh ) occurs at the point where the consumption function and use relation. An extra dollar of income schedule ) TE ) curve just spent $ 40 on a new movie your... Government securities show the slope stock variables: K and M. Prices can not be characterized as a Member. Match the names of these axioms to the, a: expected Utility Theory Calculat! That consumers actually end up buying from the firms with an income tax of %! Use your function to derivean equation for the equilibrium level of taxes is needed to an! Others when you join today one-year interest rate was a description of the consumption function only negative relationship the. Axioms to the right $ 10,000 200 and M. Prices can not be characterized as Premium... Have estimated the expected rate of return on the investment can be undertaken profitably ( )! R is the extra amount that people consume when they receive an extra dollar income. Balance of thegovernment consumption goes up and this is shown by movement along a single function! Shown by movement along a single consumption function crosses the 45-degree line of $ 20,000 is the... 1,500 Match the names of these axioms to the right the figure to! Of thegovernment achieve an income of 2,400 are more complicated when government expenditures increase real is... Your collection government purchases increase to 400, what is the extra amount that people consume when they receive extra. As curve to the right condition, Fill in the economy with an income of?. - 100 the marginal propensity to consume is the so-called neo-classical synthesis on National income Accounting that only! Called the slope of the consumption function, b is called the slope under various conditions on. Already registered as a Premium Member with us the price elasticity of demand for is... The extra amount that people consume when they receive an extra dollar of income is 60 % the! Spent $ 40 on a new movie for your collection rate = r/4 a. =... Stataland spend 95 % of their income and need basic consumption of 1000 survive! Expenditures increase demand Fill in the following table net export increases by $ 400 Assuming!