Macroeconomics Answers

In a basic Keynesian macroeconomic model, it is assumed that
Y = C + I
Where;
I = 250 and C = 0.75Y.
What is the equilibrium level of Y? What increase in I would be needed to cause Y to increase to 1,200?

You are given the following data about an economy that has a fixed price level.
Disposable Income (billions of dollars) Consumption Expenditure (billions of
dollars)
0 5
100 80
200 155
300 230
400 305
a) Calculate the marginal propensity to consume.
b) Calculate autonomous consumption expenditure.
c) Calculate the multiplier.
d) Calculate the increase in real GDP when autonomous spending increases by $5
billion. Why does real GDP increase by more than $5 billion?

1.“An increase of the marginal propensity to spend out of national income will cause a
parallel shift of AE curve”. Is this statement true or false? Please explain if it is false.

Most provincial parks charge a fixed price for a camping permit and allow you to reserve specific campsites in advance. By the time the summer holiday weekends arrive, all the permits are usually taken. There is excess demand but no price adjustment. Suggest a pricing system for provincial parks that allows them to take advantage of the higher demand for campsites on holiday weekends. Your system should explain who is competing and who is cooperating.

Consider the effect of a government subsidy whereby government paid 10 percent of the wages of newly hired workers. How would employment and output be affected by the program in the classical model? What would be the effect on position of Aggregate supply schedule.

How the value to K should be calculated in to find threshold level of inflation?

Explain Keynes’s theory of how expectations affect investment demand. How is this theory related to Keynes’s view that aggregate demand would be unstable in the absence of government stabilization policies?

Consider the case in which the LM schedule is vertical. Suppose there is a shock that
increases the demand for money for given levels of income and the interest rate. Illustrate
the effect of the shock graphically and explain how income and the interest rate are
affected.

Suppose we were in a situation where the interest elasticity of investment is low, and money
demand is very interest elastic. Explain the effect on income of a monetary and fiscal policy
action. Which of the two policies is more effective?

Consider the effect of a government subsidy whereby government paid 10 percent of the wages of newly hired workers. How would employment and output be affected by the program in the classical model? What would be the effect on position of Aggregate supply schedule.