Aggregate consumption level-tax multiplier for economy

Reference no: EM13691032

Use the following macroeconomic model to answer the questions from 1 through 12: You must show your work of estimation to obtain the credits.

C = 200 + 0.75Yd; C = consumption function; Yd = disposable income (Y-T)

T = 200; T = Tax revenue

I = 200; I = Investment

G = 300; G = Government expenditure

Yf = Full Employment RGDP (Potential RGDP) = 3,000

1. Estimate the equilibrium GDP level (income).

2. At the equilibrium level of output you estimated for Q1 above, estimate the aggregate consumption level

3. At the equilibrium level of output you estimated for Q1 above, estimate the aggregate saving level.

4. The MPC and MPS for the economy is respectively:

5. The expenditure multiplier for the economy is:

6. The tax multiplier for the economy is:

7. If the Tax amount is reduced from $200 to $100, estimate the equilibrium GDP level (income).

8. With Tax amount keeping at $200, if Government spending (G) is increased from previous level of $300 to $400, estimate the equilibrium level of GDP.

9. With Government spending keeping at $300, if the tax amount is increased from $200 to $300, estimate the equilibrium level of GDP.

10. With Tax amount keeping at $200, if government spending is reduced from $300 to $200, estimate the equilibrium level of GDP.

11. Using the data for potential RGDP in the above Macroeconomic model, and using the estimated equilibrium RGDP from Q1 answer, what is the level of GDP gap?

12. Based on your answer to Q11, what is the level of recessionary or inflationary gap?

Reference no: EM13691032

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