in an income expenditure model with marginal propensity to import as 0.1 and income tax rate as 0.2, a decline of investment of $100 will lead to a decline in income of $200 if marginal propensity to consume is:
Suppose you are given the following fixed-price Keynesian model:
C = 480 + 0.9Yd
I = 200
G = 100
X = 200
M = 100 + 0.1Yd
T = 100
a. Find the aggregate expenditure function.
b. Find the equilibrium level of real GDP.
c. What is the spending multiplier in this model? Tax multiplier?
d. Show that leakages = injections at equilibrium.
e. If taxes increase by $100, what is the new equilibrium level of
GDP?
In one year, America can produce 100 shirts or 20 computers and China can produce 100 shirts or 10 computers. With trade, which country exports shirts? Which country benefits from the trade? Show production, trade, and consumption numbers in answer.
During trough portion of the business cycle what fiscal policy should the President and Congress promote? What monetary policy would you expect to be implemented by the Federal Reserve?
a. Outline the principal constraints which prevent unlimited expansion of bank credit.
(15 marks)
b. Explain the likely effects of a significant reduction in the rate of money supply growth on:
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