Economics Answers

7 So 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.

Suppose the IS curve is Y = 2500-125i and the LM is Y = 1000+25i. Use Cramer’s rule to determine i* and Y*. Now suppose increased spending by $100m. Determine the extent of crowding out of private investment and the increase in Ms required to dampen any crowding-out effect. You are given the following parameters: αG = 2.5, h = 65, k = 0.5, b = 50.

Given that IS is Y = 2500-50i, and the interest rate reaction function is ip = 2 + 0.5(P-P*),
where ip is the central bank policy rate. Assume that i (interest rate) is 0.5 + ip (interest rate is a wedge over the policy rate). Determine the AD function. If AS function was Y =0.25(P-P*) + 2000 determine Y* and P* and inflation rate. Assume P* = 105.

Use the following data to work Problems 1 to 3. The U.S. dollar exchange rate increased from $0.89 Canadian in June 2009 to $0.96 Canadian in June 2010, and it decreased from 83.8 euro cents in January 2009 to 76.9 euro cents in January 2010. Did the U.S. dollar appreciate or depreciate against the Canadian dollar? Did the U.S. dollar appreciate or depreciate against the euro? Explain

If the economy is heading towards a recession, might the government change tax policies?

With the same amount of resources, Firm A can purchase 60 hydraulically operated equipment or 120 mechanically operated equipment. What is Firm A's opportunity cost of purchasing 1 hydraulically operated equipment?

You are given the following information about a country:
Billions ($)
Receipts of factor income from the rest of the world 25
Indirect taxes 60
Corporate profits 80
Net interest 15
Depreciation 150
Compensation of employees 850
Net business transfer payments 20
Amount of national income not going to households 100
Proprietor’s income 220
Personal income taxes 200
Rental income 35
Subsidies 30
Payments of factor income to the rest of the world 45
Surplus of Governmental Enterprises 50
Using the information provided on the table above to compute the following (Show your work
and formulas).
a. National Income
b. Gross National Product
c. Gross Domestic Product
d. Disposable Personal Income
Please don't forget the formulas. thank you

Q2. If the consumption function of an economy is given by C=500+0.75Yd and Investment
function is I= 300, then:
a) Derive equation for AD.
b) Determine equilibrium value of output.

a) Two students studying microeconomics are trying to understand why the tangent condition means utility is at a maximum. Let’s listen:
Student A. If a person chooses a point on his or her budget constraint that is not tangent, it is clear that he or she can manage to get a higher utility by spending differently.

Student B. I don’t get it—how do you know he or she can do better instead of worse? How can you help out Student B with a graph?

Karen runs a print shop that makes posters for large companies. It is a very competitive business. The market price is currently $1 per poster. She has fixed costs of $250. Her variable costs are $1,800 for the first thousand posters, $1,500 for the second thousand, and then $900 for each additional thousand posters.



Instructions: Round your answers to 3 decimal places.



a. What is her AFC per poster (not per thousand!) if she prints 1,000 posters? $
.



What if she prints 2,000 posters? $
.



What if she prints 10,000 posters? $
.



b. What is her ATC per poster if she prints 1,000? $
.



What if she prints 2,000? $
.



What if she prints 10,000? $
.



c. If the market price fell to 85 cents per poster, would there be any output level at which Karen would not shut down production immediately? .