Macroeconomics Answers

Assume an economy does not trade with the outside world. In a given fiscal year, household spent 80% of their disposable income on consumption in addition to 600 consumption expenditure which is independent of income. Total government expenditure of 900 was supposed to be financed from a proportion tax levy of 40% on national income and a lump sum tax of 450. Total private investment spending is 700. Given that aggregate output is equal to aggregate spending. Determine the value of the multiplier.

Assume Aduhene economy does not trade with the outside world. In a given fiscal year, households spent 80% of their disposable income on consumption in addition to 600 consumption expenditure which is independent of income. Total government expenditure of 900 was supposed to be financed from a proportion tax levy of 40% on national income and a lump sum tax of 450. Total private investment spending is 700. Given that aggregate spending is equal to aggregate output.

1. Determine the value of the multiplier

2. Find the equilibrium level of output

Assume Joy economy does not trade with the outside world. In a given
fiscal year, households spent 80% of their disposable income on
consumption in addition to 600 consumption expenditure which is
independent of income. Total government expenditure of 900 was
supposed to be financed from a proportion tax levy of 40% on national
income and a lump sum tax of 450. Total private investment spending is
700. Given that aggregate spending is equal to aggregate output.
1. Determine the value of the multiplier
2. Find the equilibrium level of output

A small town mayor has two proposals for building a road. The first is to let a private company build the road, and the second is for the local government to make it. The fixed cost of the road is $2 million, while its maintenance cost is 0.

Evaluate the importance of productivity for the rate of economics growth

Hint includes - Actual growth, potential growth, AS/AD diagrams.

Economics A level (this is a 20 marker)

What does a reduction in terms of trade mean

3.8Consider first the goods market model with constant investment that we saw in Chapter 3. Consumption is given by:
C = Co + c1(Y-T)
And I, G and T are given.
a. Solve for equilibrium output. What is the value of the multiplier? Now let investment depend on both sales and the interest rate: I=b0 +b1Y-b2i
b. Solve for equilibrium output using the methods learned in chapter 3. At a given interest rate, why is the effect of a change in autonomous spending bigger than what it was in part (a)? Why? (Assume c1 + b1 = 1)
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c. Solve for equilibrium level of investment.
d. Let’s go behind the scene in the monetary market. Use the equilibrium in the money market M/P = d1Y – d2i to solve for the equilibrium level of the real money supply.
How does the real money supply vary with government spending?

3.9Consider the following IS-LM model: C = Co + c1(Y-T)
I=b0 +b1Y-b2i
M/P = d1Y – d2i
a. Solve for equilibrium output. Assume (Assume c1 + b1 < 1). Now let investment depend on both sales and the interest rate: b. Solve for equilibrium level of interest rate.
Let’s go behind the scene in the monetary market. Use the equilibrium in the money market M/P = d1Y – d2i to solve for the equilibrium level of the real money supply.
How does the real money supply vary with government spending?

3.7So far, we have been assuming that the fiscal policy variable T is independent of the level of income (exogenous). In the real world, however, this is not the case. Taxes typically depend on the level of income, so tax revenue tends to be higher when income is higher. In this problem, we examine how this automatic response of taxes can help reduce the impact of changes in autonomous spending on output.
Consider the following model of the economy: C=C0 +c1Yd
T=t0 +t1Y
Yd = Y - T
G and I are both constant (exogenous).
a. Is t1 (marginal propensity to tax) greater or less than one? Explain.
b. Solve for equilibrium output.
c. What is the multiplier? Does the economy respond more to changes in
autonomous spending when t1 is zero or when t1 is positive? Demonstrate.

3.6Suppose that the economy is characterised by the following behavioural equations:
C=C0 +c1Yd Where:
C0 = 280
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I = 270
G = 300
T = 200
Marginal Propensity to Save (MPS) is 0.4 (or 40%) Solve for:
a. equilibriumGDP(Y).
b. disposable income (Yd).
c. consumptionspending(C).