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Suppose that initially equilibrium income was 200 units and that was also the fullemployment level of income. Assume that the consumption function is C = 25 + 0.8YD And that, from this initial equilibrium level, we now have a decline in investment of 8 units. What will be the new equilibrium level of income? What increase in government spending would be required to restore income to the initial level of 200? Alternatively, what reduction in tax collections would be sufficient to restore an income level of 200?
Suppose that for a particular economy and period, investment was equal to 100, consumption (C) was given by the consumption function. C = 25 + 0.8YD Where YD is disposable income and Y is GDP. a) What is the level of equilibrium income (Y)? b) What is the value of the government expenditure multiplier (ΔY/ ΔG)? Of the tax multiplier (ΔY/ ΔT)? c) Suppose that investment declined by 40 units to a level of 60. What will be the new level of equilibrium income?
In the simple Keynesian model, an increase of one dollar in autonomous expenditure will cause equilibrium income to increase by a multiple of this one dollar increase. Explain the process by which this happens using different approached of explanations..
Explain carefully why the tax multiplier [ΔY/ ΔT = -b/ (1-b)] is negative and why it is smaller in absolute value than the government expenditure multiplier [ΔY/ ΔG = 1/ (1- b)]
Suppose that government spending was increased by 15 million and that this increase was financed by a 15 million increase in taxes. Would equilibrium income change or remain the same as a result of these two policy actions and why is it important? If equilibrium income changed, in which direction would it move, and by how much? Explain.
Why long run aggregate supply curve is vertical ?
1. In the simple Keynesian model, an increase of one dollar in autonomous expenditure will
cause equilibrium income to increase by a multiple of this one dollar increase. Explain the
process by which this happens using different approached of explanations..
Explain Coase theorem in detail
Suppose that a bushel of American rice sells for $100
and a bushel of Japanese rice sells for 16,000 yen. If the
nominal exchange rate is 80 yen per dollar, then what is
the real exchange rate between American and Japanese
rice?
Explain carefully why the tax multiplier [ΔY/ ΔT = -b/ (1-b)] is negative and why it is smaller in absolute value than the government expenditure multiplier [ΔY/ ΔG = 1/ (1- b)].
