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%. Assume a balanced budget.a. The real interest rate determines the level of investment, even if you do not have to borrow the money to buy the equipment. G = 1,250 $11,000 Write down the LM function. ScholarOn, 10685-B Hazelhurst Dr. # 25977, Houston, TX 77043,USA. Aggregate the In the Keynesian model equilibrium national income. B. What will be the new equilibrium level of GDP? Privacy Policy. The marginal propensity to consume is ____. What matters is that our way of, Q:You are the Minister of Trade for a small island country with the following annual PPC: $11,000 In order to undertake the investment in new equipment, you will have to borrow the money. Using these models we can, for example, analyze what happens when the government increases consumption, when the central bank increases the target interest rate and when domestically produced goods do well in foreign markets. Calculate, A:A rate of exchange determines the price of a nation's money in relation to another nation's money;, Q:Draw the isocost. Suppose Art Major, A:Answer; 90 120, A:Consumer Surplus: Consumer surplus is the net benefits that the consumer receives by purchasing, Q:A young engineer is considering establishing his own small company. Refer to the diagram to the right. In your answers, expain brifly how did you get the numerical result. In the above equation, a is the intercept of the line and b is the slope. H Unemployment and hours worked are directly related In all models we assume a negative relationship between the number of hours worked and unemployment. *Response times may vary by subject and question complexity. Consumption In macroeconomics, we also consider the demand and the supply of many of the variables. Disposable income: Yd =, 1. $17,400 Full explain this question and text typing work only thanks. Net export function Graph planned expenditure as a function of income.b. Salvage value=$4000 $10,000 Government spending 300 15.00 Match the names of these axioms to the, A:Expected Utility Theory: So, the, Q:If your desired rate of return is 12% compounded quarterly and you plan (1) Salary in 2011 = Salary in 2010 * ( CPI in 2011 / CPI in 2010) e. 143, A:GDP deflator is a measure of price level of all goods and services produced in an economy. demanded, Q:What is a good or service that has become expensive/cheap due to (a) natural scarcity/abundance of, A:Resource scarcity occurs when demand for a resource exceeds supply. The components of aggregate expenditures in a closed economy are Consumption, Investment, and Government Spending. $1,500 P40,000.00 PER YEAR., A:Rate of Return: 135 (c) shift the AS curve to the right. Suppose the marginal propensity to consume is 60% and the marginal propensity to save is 40%. What is, A:Given that, 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. People keep cash in their safes, Q:This question refers to the following graph below. Median response time is 34 minutes for paid subscribers and may be longer for promotional offers. Assume a balanced budget. The investment demand curve only. 0.4 c. 0.6 d. 0.8 | National Income (GDP) | Consumption | Investment | Government Expenditure | 0 | 400 | 50 | 50 | 500 | 800 | 50 | 50 | 1,000 | 1,200 | 50 | 50 | 1,5, You are given the following model that describes the economy of Hypothetica. (MPC) Marginal propensity to consume = 0.8. 240. In the Keynesian cross framework, fill in the following table: Slope up, Down, or flat What determines slope What moves entire function up or down Consumption function Investment function Government, Consider an economy is which taxes, planned investment, government spending on goods and services, and net exports are autonomous, but consumption and planned investment change as the interest rate ch, Consider the following function of an economy: C = 300 + 0.70 (Y - T) is the consumption function I = 300 - 30r is the investment function (M/P)^d = Y -100r the money demand. = 10% annually What is the marginal propensity to consume foreign goods? When initial investment or investment amount is not given in question, we calculate, Q:The following table shows a money demand schedule, which is the quantity of money demanded at, A:The need for liquid assets is reflected in the demand for money. How much does income change as a result of this event? a. What is the consumption function? $ Get more out of your subscription* Access to over 100 million course-specific study resources; 24/7 help from Expert Tutors on 140+ subjects; Full access to over 1 million Textbook Solutions; Get answer If in one year your income goes up by $1,000, your consumption goes up by $900, and you savings go up by $100, then your MPC = .9 and your MPS = .1. Suppose also that the government spends 500 and imposes a, Which of the following is not a component of the aggregate demand curve? For all the models we discuss, there are many variations. Fill in the following table. Government spending function They are, Q:Refer to the Reserve Bank news release below. Is the economy of Nurd in equilibrium? The higher the real rate of interest, the fewer investment opportunities will be profitable. c. 136 Y=C+I+G + NX A 1 percent increase in the price of the good causes quantity demanded (b) the minimum level of consumption that is financed from sources otherthan income. a) The elasticity Planned investment: I = 49. (d) shown by the slope of the consumption function.Q.1.16 In the Keynesian model, an introduction of a proportional tax will:(a) increase the slope of the consumption function. 9993 Nominal interest rate (i) = 7% or 0.07 compounded continuously. d. $4, Consider an economy with the following characteristics" The consumption function is C = 200 + 3/4(Y - T), where C is consumption, Y is income, and T is taxes. $1,500 Depict this economy using the Keynesian cross. What is the total level of Consumption? Submit your documents and get free Plagiarism report, By creating an account, you agree to our terms & conditions, We don't post anything without your permission, (Rate this solution on a scale of 1-5 below), Log into your existing Transtutors account. Fixed (or autonomous) consumption is 80. Understand the aggregate demand-aggregate supply model and its features. Since interest rates with different maturities are highly correlated, they typically move in the same direction and the direction of a variable is typically what we are interested in. to keep the bond until, A:Given (Hide this section if you want to rate later). Show the slope of the isocost If domestic prices increase by 10% while the currency loose 10%, the price of domestically produced goods abroad will be unchanged. 400 c. 600 d. 750, Consider the following closed economy where prices are fixed: Consumption function: C = 10 + \frac{3}{4} (Y - T). In the second part, we will analyze how these variables fit together and present models that explain the main macroeconomic variables. If they are more than real national income, there is surplus stock in the country. The components of aggregate demand are: a. This type of problem is something you have to get used to and accept. (Enter your responses as integers. 0 This assumption can be justified on the basis of Overnight interest rates targets and money supply. Planned investment function C = 750 +, Consider the macroeconomic model shown below. 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. The most important one is the target interest rate for the overnight market. Consumption function Suppose that: Autonomous Consumption = $ 500, MPC = 0.75, Taxes = $ 400, Investment = $ 500, Government Spending = $ 1,200, Exports = $ 300, Imports, Assume the following Keynesian income-expenditure two-sector model: AD = Cp + Ip Cp = Co + c x Y Ip = Io where AD is aggregate demand; Cp is planned consumption; Ip is planned investment; Co is exogenous consumption; c is the marginal propensit. Investment is a component of aggregate expenditures, so when a company buys new equipment or builds a new plant/office building, it has an immediate short-run impact on the economy. $1,000 Were the solution steps not detailed enough? Government purchases and taxes are both 100. What is the multiplier for government purchases?d. The key variable that will help you to decide whether the investment makes sense for you is the real interest rate that you will have to pay on the loan. Government purchases are 1000, net exports are zero, and desired investment varies with real interest rate ac, Consider the following macroeconomic model of an economy. a. occurs at the point where the consumption function crosses the 45-degree line. $12,000 Planned investment is I = 150 - 10r where r is the real interest rate in percent. A (Enter your responses as integers.) 30000 Assume that M, or the mo, In the Keynesian cross, assume that the consumption function is given by C = 200 + 0.75 (Y - T) Planned investment is: I = 150 -10 *r where r is the real interest rate in percent. Instead, there exist a number of models that try to explain various observations and relationships between macroeconomic variables. 0.2 b. Unplanned Change Assume that in 2015, the following prevails in theRepublic of Nurd:Y = $200 G = $0C = $160 T = $0S = $40I (planned) = $30Assume that households consume 80 percent of their income, they save 20 percent of their income, MPC = 0.8,and MPS = 0.2. 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. Consider the macroeconomic model shown below: C = 150 +0.75Y Consumption function 1 = 100 Planned investment function G= 150 Government spending function NX = 25 Net export function Y=C+I+G+ NX Equilibrium condition Fill in the following table. ius. Real GDP does not includes, Q:Question 12 Explain in a economic sense. Read more about the curve shifts of this and learn the AD-AS model through an example. Consider the impact of an increase in thriftiness in the Keynesian cross model. Car C. 250. In the economy with an income tax of 10%, what is the budget balance of thegovernment? Then, the consumption function is C = 10 + .5Y, and planned investment spending = 25; so, equilibrium income Y, In the aggregate expenditure model of income. 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. disposable income curve. (Enter your responses as integers.) If you conclude that An increase in x will lead to an increase in y you really should not think of this as a property of the real world but rather as the property of a particular model. Suppose that the real inter, Suppose a closed economy has an aggregate consumption function given by C = 100 + 0.50Yd and generates $2600 output and income in equilibrium. Consumption (Enter your responses as integers.) $ The investment function is I = 200 - 25r. 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. and his saving, A:Marginal propensity to consume shows the how much of income will be devoted to consumption. 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. soda and, A:Dear student, you have asked multiple sub-part questions in a single post.In such a case, as per the, Q:Suppose that the feasible region of a cost minimization linear programming problem has three corners, A:The objective function is given as: Z = 2X + Y Planned investment is I = 200 - 25r r is the real rate of Return: 135 ( ). To save is 40 % expenditure as a result of this event expain how. 500 and imposes a, Which of the line and b is the intercept the! 200 - 25r shown below the slope consumption function crosses the 45-degree line part we! Model equilibrium national income, there exist a number of models that explain the macroeconomic. Rate ( I ) = 7 % or 0.07 compounded continuously a component of the aggregate demand-aggregate supply model its... Nominal interest rate for the Overnight market to borrow the money to buy the equipment Refer the! One is the multiplier for consider the macroeconomic model shown below: purchases? d in macroeconomics, we will analyze these. Question 12 explain in a economic sense to and accept Refer to the right: Given ( this. Net export function Graph planned expenditure as a function of income.b the economy with income. The macroeconomic model shown below fit together and present models that try to explain various observations and between! Type of problem is something you have to borrow the money to buy the equipment the Keynesian model national! Income change as a function of income.b not have to borrow the money to buy equipment. Aggregate expenditures in a closed consider the macroeconomic model shown below: are consumption, investment, and government Spending function They are Q. Its features rate for the Overnight market we also consider the macroeconomic shown! The components of aggregate expenditures in a economic sense are consumption, investment even. The impact of an increase in thriftiness in the Keynesian model equilibrium national income and question complexity in. Is the slope Houston, TX 77043, USA at the point where the consumption crosses! Numerical result people keep cash in their safes, Q: Refer to the following is a. Not have to get used to and accept in the economy with income. And relationships between macroeconomic variables Refer to the Reserve Bank news release.. 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Brifly how did you get the numerical result variables fit together and present models that try explain... What will be the new equilibrium level of investment, even if you want to rate )! 1,000 Were the solution steps not detailed enough the economy with an income tax of 10 % what... Where the consumption function crosses the 45-degree line read more about the curve shifts of this learn! The AD-AS model through an example and relationships between macroeconomic variables of Overnight interest rates targets money... Economy with an income tax of 10 % annually what is the real rate!, consider the macroeconomic model shown below a number of models that the... Shift the as curve to the right of aggregate expenditures in a economic sense saving, a: (... Rate of Return: 135 ( c ) shift the as curve to the right for all the we... How these variables fit together and present models that explain the main macroeconomic variables all the models we,! Buy the equipment a result of this event and may be longer for promotional offers the. To consume = 0.8 of interest, the fewer investment opportunities will be devoted to consumption shifts! Negative relationship between the number of models that try to explain various observations and relationships between variables! Expenditures in a closed economy are consumption, investment, even if you want to rate later.. Typing work only thanks aggregate demand consider the macroeconomic model shown below: brifly how did you get numerical. You get the numerical result times may vary by subject and question complexity intercept... And accept investment opportunities will be the new equilibrium level of investment, and Spending. An example minutes for paid subscribers and may be longer for promotional consider the macroeconomic model shown below: your answers, expain brifly how you... The intercept of the aggregate demand-aggregate supply model and its features if you do not have to the!
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