+1-415-670-9189
info@expertsmind.com
What is the value of the new equilibrium level of income
Course:- Macroeconomics
Reference No.:- EM13795764




Assignment Help
Assignment Help >> Macroeconomics

Part I: The Dreaded Multiplier

The table below shows GDP, Disposable Income (YD), consumer spending (C) and planned investment spending (Iplanned) in Broncoland. Assume there is no government spending or foreign sector in this economy. All numbers are in billions of dollars. Complete the table below and answer the following questions.

GDP

 

YD

C

Iplanned

AE Planned

Iunplanned

$0

$0

$100

$300

 

 

400

400

400

$300

 

 

800

800

700

$300

 

 

1,200

1,200

1,000

$300

 

 

1,600

1,600

1,300

$300

 

 

2,000

2,000

1,600

$300

 

 

2,400

2,400

1,900

$300

 

 

2,800

2,800

2,200

$300

 

 

3,200

3,200

2,500

$300

 

 

a. Write the equation for the consumption function.

b. Write the equation for the AE Plannedfunction. Graph the AE Planned function. Add the 45 degree reference line to your graph (the line along which AE planned = GDP) Hint: try to graph to scale.

c. What is the equilibrium level of income? Explain why this income level is equilibrium.

d. What is value of the multiplier? Explain the multiplier. (This multiplier is called the autonomous expenditures multiplier or the fiscal policy multiplier. You will learn other multipliers later this semester.)

Part II. Autonomous Consumption Increases to $200 billion, the dreaded multiplier continued

a. Consumers are finally reassured the economy really is improving. Autonomous consumption increases $200 billion.

GDP

 

YD

C

Iplanned

AE Planned

Iunplanned

$0

$0

 

$300

 

 

400

400

 

$300

 

 

800

800

 

$300

 

 

1,200

1,200

 

$300

 

 

1,600

1,600

 

$300

 

 

2,000

2,000

 

$300

 

 

2,400

2,400

 

$300

 

 

2,800

2,800

 

$300

 

 

3,200

3,200

 

$300

 

 

b. Write the equation for the new consumption function.

c. Write the equation for the new AE Planned function.

d. Graph the original and the new AE Planned functions along with the 45 degree reference line.

e. What is the value of the new equilibrium level of income?

f. Did the new equilibrium level of income increase by $200 billion, the value of the increase in consumer spending? If not, explain why not.

Part III. Planned Investment spending falls $100 billion.

a. Business firms are worried about the state of the economy. The continuing strength of the U.S. dollar and lack of sustainable increases in consumer spending cause business firms to spend $100 billion less. Fill in the table below.

GDP

 

YD

C

Iplanned

AE Planned

Iunplanned

$0

$0

$100

 

 

 

400

400

400

 

 

 

800

800

700

 

 

 

1,200

1,200

1,000

 

 

 

1,600

1,600

1,300

 

 

 

2,000

2,000

1,600

 

 

 

2,400

2,400

1,900

 

 

 

2,800

2,800

2,200

 

 

 

3,200

3,200

2,500

 

 

 

b. Write the equation for the new AE Planned function.

c. Graph the original (Part I) and new AE Planned functions along with the 45 degree reference line.

d. What is the value of the new equilibrium level of income?

e. Did the new equilibrium level of income fall by $100 billion, the value of the decrease in autonomous investment? If not, explain why not.




Put your comment
 
Minimize


Ask Question & Get Answers from Experts
Browse some more (Macroeconomics) Materials
Suppose past year's real GDP was $7,000 billion, this year nominal GDP is $8,820 billion, and GDP deflator for this year is 120. Determine the growth rate of real GDP? Does th
Use concepts that you have learned throughout the semester, such as consumer and producer surplus, scarcity, and how companies decide where to price products and how much to
If every time real GDP exceeds potential GDP, contractionary policy is used & whenever real GDP is less than potential GDP, GDP equal potential GDP and then aggregate demand r
Assume both the 1-year and 11-year spot rates unexpectedly shift downward by 2 percent. Illustrate what is the price of a forward contract otherwise identical to yours.
Illustrate what are the four supply factors of economics growth. What is the efficiency factor? Please illustrate these factors in the terms of the production possibilities cu
Suppose that the production function for iPods isQ= 20K0.5L0.5. The marginal product of labor is 10(K/L)0.5, and the marginal product of capital is 10(L/K)0.5. Suppose that l
Two firms compete in a market to sell a homogeneous product with inverse demand function P=600-3Q. Each firm produces at a constant marginal cost of 300 and has no fixed cos
Run the model by copying the formula in the t = 1 row all the way down to the t = 30 row. Complete the table. How long did the model actually take to converge to the steady-