$1,500 $11,000 sy = (n+d)k Find a numerical value for: - Consumption - Investment - Private saving - National saving - G, Consider a closed economy in which output is the sum of consumption, investment and government purchasesY = C+ I + G,and where C, I and G are respectively given by C = 5000 - 3000r + 0.8Y, Consider the consumption-savings problem in a two-period model without government. (Enter your responses as integers. C = 750 + : 247797. $8,600 We will in the rest of the book discuss a number of macroeconomic models. Custom boutique photography for newborns, children, families, seniors, and weddings This is in contrast to consumption purchases that do not have the same impact. Suppose that the price of President's Choice macaroni and cheese decreased from $10 to $9 per, A:Cross price elasticity of demand measures the responsiveness of quantity demanded of good 1 with, Q:Suppose Walmart has announced plans to seek approval from the planning commission of a small town to, A:Planning: It refers to the process under which the firms make a blueprint of all the things that, Q:DER for USA of Commodities Wheat Bushel & Cloth Yards is 12W = 8C Ishana can wax a car in 30 minutes or. What if one of these non-income determinants of consumption changes? Therefore, investment almost always involves some risk. If in one year your income goes up by $1,000, your consumption goes up by $900, and you savings go up by $100, then your MPC = .9 and your MPS = .1. where and, A:U(x,y) = (x+2)(y+1) 4. If government purchases increase to 400, what is the new equilibrium income? there are 3 First week only $4.99! Government purchases and taxes are both 100. What is the equilibrium level of income?c. draw this initial isocost. In the Keynesian cross framework, fill in the following table: Slope up, Down, or flat What determines slope What moves entire function up or down Consumption function Investment function Government, Consider an economy is which taxes, planned investment, government spending on goods and services, and net exports are autonomous, but consumption and planned investment change as the interest rate ch, Consider the following function of an economy: C = 300 + 0.70 (Y - T) is the consumption function I = 300 - 30r is the investment function (M/P)^d = Y -100r the money demand. What happens to the, Consider again the Classical model given in question 2, where. NX = - 50 Net export function Y = C + | + G + NX Equilibrium condition Fill in the following table. Determine the equil, Assume the consumption function is C = 1.5 + 0.75(Y - T). 6 days ago, Posted If income goes up then consumption will go up and savings will go up. Median response time is 34 minutes for paid subscribers and may be longer for promotional offers. u(x, x2) = x1 + x1x2. Consider the macroeconomic model shown below: Fill in the following. Net export function Get access to millions of step-by-step textbook and homework solutions, Send experts your homework questions or start a chat with a tutor, Check for plagiarism and create citations in seconds, Get instant explanations to difficult math equations. People keep cash in their safes, Q:This question refers to the following graph below. ius. The firms demands, Q:Q2. 350 b. B. output must equal consumption and investment. In your answers, expain brifly how did you get the numerical result. As both market, Q:In a Poisson distribution, = .36. In this section we have summarizes all the macroeconomic variables we will consider in this book. All other trademarks and copyrights are the property of their respective owners. . Lets look at several of these non-income determinants of consumption and savings: You can likely think of other factors that are unrelated to income that could shift the Consumption and Savings Functions. . 10. Although we use the term the classical model as if there were only one classical model, this is not quite true. A 1 percent increase in the price of the good causes quantity demanded What is a strictly dominated Which one of the following statements is incorrect? In any case, a is the amount of consumption when disposable income is zero and it is called autonomous consumption, or consumption that is independent of disposable income. Consider the following scenario. What is the Saving Function? If a company buys a new machine, that machine is going to operate, continue to produce, and will have an impact on the productive capacity of the economy for years to come. Suppose a consumer seeks to maximize the utility function What kind of market failure is addressed when, A:resources are allocated efficiently and effectively by the market mechanism. Exports: EX = 20. B) Write the mathematical expression of the investment function. Government purchases and taxes are both 100. What level of taxes is needed to achieve an income of 2,200? 6000 What is the multiplier for government purchases?d. Suppose Y = $200, C = $160, S = $40, and I = $40. 135 The Savings Function shows the relationship between savings and disposable income. $17,000 Consumption function: C = 40 + 0.9Y_D Planned investment: I = 40 Government expenditure: G = 60 Tax function: T = 0.2Y Exports of the country: X = 14 Import function: M = 10 + 0.02Y Assume there are no transfer payments and no autonomous taxes. $9,000 Get additonal benefits from the subscription, Explore recently answered questions from the same subject, Explore documents and answered questions from similar courses, Explore recently asked questions from the same subject. In general it can be said: MPC = Change in Consumption/Change in Disposable Income = C/Yd, MPS = Change in Savings/Change in Disposable Income = S/Yd, It is also important to notice that: MPC + MPS = 1. a. occurs at the point where the consumption function crosses the 45-degree line. (Remember the idea of a slope being the rise over the run? Explain in a economic sense. Graph planned expenditure as a function of income.b. Investment function: I = i_0 - i_1r + i_2 Consumption function: C = a + b(Y - T) - cr There is no government expenditure. Consider the macroeconomic model shown below: C= 100+0.50Y C = 100 + 0.50 Y Consumption function I = 125 I = 125 Planned investment function G= 150 G = 150 Government spending function N X = 10 N. Kindly login to access the content at no cost. 10.00 What is the consumption function? Consider the following model: Y=C+I_0+G_0; C=a+bY(1-t_0),(a0;0b1) Y stands for Income, C for Consumption, I for Investment and G for Government Expenditure, t_0 for tax rate. 10000 Annual costs=$18000 1 answer below . $10,200 Equilibrium condition (Taxes remain unchanged.)e. A) Write the mathematical expression of the consumption function. If you conclude that An increase in x will lead to an increase in y you really should not think of this as a property of the real world but rather as the property of a particular model. Suppose that the real int, In the Keynesian cross, assume that the consumption function is given by C = 200 + 0.75(Y - T). In economics we call this dissavings. Point E is called the breakeven point because it is the point where there are no savings but there are also no dissavings. Canada, the United States, and Mexico in the, A:The transfer of commodities, services, money, and technological advancements between nations is, Q:An asset is purchased for P 90,000. Disposable income: Yd =, 1. Investment (I) c. Consumption (C) d. Net exports (X - M) e. Saving, Marginal Propensity to consume is 0.3. &= 385 - 770\\ mpc = 0.8 b. disposable income curve. An important question in the study of investment is, Why do firms invest? Investment is guided by the profit motivefirms invest expecting a return on their investment. $1,000 However, we have not made any distinction between the demand and the supply of labor which we need to do from now on. A price ceiling below the equilibrium price will The goal was to identify, Q:Comparative Advantage (a) What is the equilibrium level of real GDP in this economy? If the rate of return is, Q:2. c) equals planned consumption, investment, go, Suppose the consumption function is C = $300 million + 0.90YD, where disposable income YD = Y ? Question: Consider the macroeconomic model shown below. The consumption function is given by C = 300 + 0.6(Y - T ). Q.1.14 In the Keynesian model, what is the most important determinant of ahouseholds consumption? 4000, Q:Compare the levels of inequality among the dierent groups To make it easier to keep them apart we give the different names. Government purchases and taxes are both 100. Planned investment 200 (a)What is the, Q:QUESTION 6 $1,500 -$700 If a bank with $500 in deposits is holding reserves of $60 when the reserve ratio is Economics Share With Consider the macroeconomic model shown below: C = 100+ 0.90Y 1 = 100 G= 150 NX = -50 Y=C+I+G+ NX Consumption function Planned investment function Government spending function Net export function Equilibrium condition Fill in the following table. b) The elasticity at p, A:Elasticity of demand measures the responsiveness of quantity demanded with respect to change in. (Taxes remain at 400.)e. The key variable that will help you to decide whether the investment makes sense for you is the real interest rate that you will have to pay on the loan. In order to separate the supply and the demand from the observed quantity, we use subscript S for supply and subscript D for demand. a What is the multiplier? For the economy as a whole, macroeconomic equilibrium occurs where total spending, or aggregate expenditure, equals total production, or GDP: Aggregate Expenditure = GDP. d. Net exports only. C. consumption must equal investment. Assume a balanced budget. If no bidder is willing to pay the reserve, A:A reserve price is a least price that a seller would be willing to accept from a purchaser. $14,000 Suppose that the real, In the Keynesian cross, assume that the consumption function is given by C = 200 + 0.75(Y - T). Write down the IS function. Q4. If Income is measured in dollars, you might ask the question, How much would your Consumption increase if your Income were increased by one dollar? The slope, b, would provide the answer to that question. inventories decreases, GDP increases, and employment increases n, Q:The premium of health insurance consists of these two factors: There are more investments with an expected rate of return higher than 4% than there are with an expected rate of return higher than 8%, so there is more investment at a lower rather than a higher real rate of interest. Z = C + I + G, C = 500 + 0.75YD, T = 600, I = 300, Identify the exogenous variables and the parameters in this model, b. Government purchases and taxes are both 100. $ Its estimated life is 10 years, after which is will be sold for, A:Cost of Asset = 90,000 We review their content and use your feedback to keep the quality high. Consider the information in the scenario above for a simple economy. A:Money multiplier is the fraction by which money supply changes when monetary base changes by $1. Read more about the curve shifts of this and learn the AD-AS model through an example. Net Exports Graph planned expenditure as a function of income.b. $1,500 400 c. 600 d. 750, Consider the following closed economy where prices are fixed: Consumption function: C = 10 + \frac{3}{4} (Y - T). S Consumption function: C = 80 + 0.75Yd. A When A is greater than Y, there is disequilibrium and Y will tend to increase.B When A is equal to Y, there is equilibrium and Y will remain unchanged.C When A is less than Y, there is disequilibrium and Y will decrease.D When A is greater than Y, there is disequilibrium and A will decrease. Our experts can answer your tough homework and study questions. What matters is that our way of, Q:You are the Minister of Trade for a small island country with the following annual PPC: GDP In order to undertake the investment in new equipment, you will have to borrow the money. Remember from our lesson on National Income Accounting that investment only occurs when real capital is created. Note that there are actually many minor variations of the neoclassical synthesis. If the number of hours worked increases, the unemployment will fall and vice versa. How long will an investment double itself if interest is earned at a compounded rate of: u(W)=W. The observed quantity is the quantity that consumers actually end up buying from the firms. The saving function? 1. First Cost=$43000 If the interest rate at the bank were 4%, you would buy the machines because they will yield a higher return than the next best alternative available to you. In Chapter 16 we will study other currency system, other models of foreign exchange rate determination and how exports and imports depend on the domestic price level. What level of government purchases is needed to achieve an income of 2,200? (MPC) Marginal propensity to consume = 0.8. Motivation for this assumption and the consequences of this assumption can be found in section 16.2. In the economy with an income tax of 10%, what is the budget balance of thegovernment? a, A:A fundamental method for nations to produce public revenues that enable them to support investments, Q:Fares makes 150 a day as a supervisor. Expert Answer . A Y1 represents the equilibrium level of income.B The curve labelled A = C + I shows the total of consumption and investment spending.C The curve labelled C shows the total of autonomous and induced consumption spending.D The point labelled D shows where savings equal investment. $1,406,000,000 Assume there are no traveler's checks. Remember, the MPC is the slope of the consumption function and the MPS is the slope of the savings function. A country's. C = 1,500+ 0.80Y *Response times may vary by subject and question complexity. Assume banks do not keep excess. Income is $2,000, taxes are $220, and government spending is $300. GovernmentPurchases The coupon rate is 6% with quarterly payment 13. Solution: Given: C = 50 + 0.75(Y-T) I = 100 2r G = 120 T = 140 Ms = 440 P = 2 (M/P)d = 0.5Y 1.5r A. Consider the macroeconomic model shown below: G = 2.65 $1,500 Rhianedd has a utility function of the formu PERFECT COMPETITION PRACTICE EXERCISE, Q:4. (Enter your responses as integers.) O the relative, A:Since you have asked multiple question, we will solve the first question for you. Price You cannot pay 6% on the loan if you only expect to earn 5.5% on the investment. O the Trade-off between two goods Y=C+I+G+NX The price of the old machine was $25000 If $200 is the full-employment level of Y, what fiscal policy might the government follow if its goal is fullemployment?c. What if you did have $500,000 sitting in your drawer, and you had to decide whether to buy machines that would yield an expected rate of return for your company of 5.5%. P, W, R, r and E apply at a given point in time while , e, w and E apply over a period of time. Q:Use the figure below to answer the following question. Was the final answer of the question wrong? Unfortunately, not all of these models consistent - one model may predict that unemployment will fall if the central bank lowers the target interest rate while another may claim that such a change will not affect unemployment. This E-mail is already registered as a Premium Member with us. If you, for example, learn the IS-LM model from this book, you will definitely recognize it in other text books that might describe it in a slightly different way. a) What is the equilibrium level of Y? Planned investment is I = 150 - 10r where r is the real interest rate in percent. (Round your responses to the nearest dollar.) If domestic prices increase by 10% while the currency loose 10%, the price of domestically produced goods abroad will be unchanged. Consider the following economy: Hint: Draw the gra, Look at the data below, the goods market of the following closed economy - the economy is not necessarily in equilibrium: C = 440 + .8(Yd) (C is Consumption, Yd is disposable income) I = 500 (I is Investment) G = 300 (G is Government Expenditure) T =, Assume that the level of autonomous consumption in Mudville is $400. Y - 0.5Y &= 385\\ The higher the real rate of interest, the fewer investment opportunities will be profitable. C = 500+ 0.80Y Consider the macroeconomic model shown below: {eq}C = 100+ 0.50Y The aggregate expenditures function (AE) represents which of the following? $1,500 government influence supply Q:Calculate the real GDP for 2011. What is the amount of consumer surplus, A:Taxes, which can take many different forms, might serve as a barrier to buying a specific good or, Q:What is the Nash Equilibrium of this game? In the Keynesian cross model, assume that the consumption function is given byC = 110 + 0.75(Y - T). You'll get a detailed solution from a subject matter expert that helps you learn core concepts. c. 136 When the, A:Given In the Keynesian model equilibrium national income. Unemployment and hours worked are directly related In all models we assume a negative relationship between the number of hours worked and unemployment. $11,000 What is, A:Given that, \end{align*}{/eq}, Unplanned change in inventories= GDP- Planned Aggregate expenditure (AE), {eq}\begin{align*} Q:After graduating from college in 2010, Art Major's starting salary is $30757.00. c. Government expenditures only. Assume a balanced budget.a. (Enter your responses as integers. Starting with the situation in part d, suppose the government starts spending $30 each year with no taxationand continues to spend $30 every period. In this section we will describe the assumptions that will apply throughout the rest of the book. The intercept is the value of C when Yd is equal to zero. c. $6,000b d. $9,400b. These are non-interest rate determinants of Investment. Does the question reference wrong data/reportor numbers? $1,500 What level of government purchases is needed to achieve an income of 2,200? 30 60 The country, A:Labor market : labor market is a market where the firms and households interacts. Machine B Consider the following macroeconomic model:C=C +(Y T)T=T +tYI=I RG=GX=X YL=Y RM=MIn this model,Yis national income,Cis consumption,Tis taxes,Iis investment,Risthe interest rate,Gis government expenditure,Xare net exports,Lis money demand,andMis money supply. (Taxes remain unchanged.)e. C = 750 +, Consider the macroeconomic model shown below. 5. Median response time is 34 minutes for paid subscribers and may be longer for promotional offers. Were the solution steps not detailed enough? Get plagiarism-free solution within 48 hours. copyright 2003-2023 Homework.Study.com. What is the Consumption Function? In the last chapter, we will look at a very simple model which allows for capital flows and for the domestic interest rate to be affected by foreign interest rates, the so-called Mundell-Fleming model. national income: Y = C +I +G. Annual Cost 12. In economics, b is a particularly important variable because it illustrates the concept of the Marginal Propensity to Consume (MPC), which will be discussed below. What is the GDP Deflator for Year 2? -$700 What is likely to happen inthe coming months if the government takes no action?b. As with the Consumption Function, there are factors that will shift the entire Investment Demand Curve. (1) Salary in 2011 = Salary in 2010 * ( CPI in 2011 / CPI in 2010) Don't Develop, Protect, Q:4) Let C(Q) denote the cost of producing Q units of a commodity per month. (Mark all that apply.) Explain how to derive a total expenditures (TE) curve. From this data I will graph both the Consumption Function and the Savings Function and calculate the MPC and the MPS. d. 142 The most important one is the target interest rate for the overnight market. If they are more than real national income, there is surplus stock in the country. In other words, what would your consumption be if your disposable income were zero? strategy in a normal-form game?, A:Game theory is the study of how interdependent decisions made by economic agents result in outcomes, Q:14. b) occurs at the point where the consumption function crosses the 45-degree line. of households to each other and to the, A:Theil index is the measurement method for racial inequality. Remember that LS and LD are functions that may depend on different variables in different models. If government purchases increase to 420, what is the new equilibrium income? The investment function is I = 200 - 25r. D. consumpti, In the Keynesian-cross analysis, if the consumption function is given by C = 100 + 0.6(Y- T), and planned investment is 100, G is 100, and T is 100, then equilibrium Y is: a. What is the equilibrium level of income?c. $12,000 Question: Consider the macroeconomic model shown below: C-750 +0.75Y -1,250 G1,500 NX =-500 Y=C+I+G+NX Consumption function Planned investment function Government spending function Net export function Equilibrium condition Fill in the following table. 240. If planned investment falls by 100, how much does the equilibrium level of output fall? Solve for the equilibrium level of output in the following two scenarios: The government spending multiplier in this economy is (blank). Aggregate Expenditures (AE) Unplanned Change in Inventories GDP $21,600 $26,400 Don't use If you thought of borrowing, you are right. Expenditures (AE) (Round your responses to the nearest dollar.) 4-14 \end{align*}{/eq}, {eq}\begin{align*} He takes off two days of work without pay to fly to another, A:The value or advantage forfeited by engaging in a specific activity in comparison to engaging in a. So, the, Q:If your desired rate of return is 12% compounded quarterly and you plan b What are the equations for the consumption, net exports, and aggregate expenditures functions? 9 days ago. $10,000 2. The consumption function is given by C=400+Y. We store cookies data for a seamless user experience. But you need to keep this in mind. B View this solution and millions of others when you join today! (A) Please determine the, The consumption function is C= 600 + .75 (y-t) - 30(r). Planned investment is I = 150 - 10r where r is the real interest rate in percent. A. (T) Taxes (lump sum). (Enter your responses as integers.) 1. -$700 Comments (0) Answer & Explanation. (Enter your responses as integers.) If it is not, then the investment will not be profitable. N $9,400 As a, A:Disclaimer- Since you have asked multiple question, we will solve the first three question for you, Q:Figure Chase Rive Concert Tickets If government purchases increase to 420, what is the new equilibrium income? A. output must equal consumption, investment, government spending, and net exports. $1,500 The real interest rate determines the level of investment, even if you do not have to borrow the money to buy the equipment. -$700 Net export function Y=C+I+G+NX Equilibrium condition Fill in the following table. After going through the example, I will give you a separate set of data and ask you to do the same thing! Business Economics Macroeconomics ECON 201. She has initial wealth of 140., A:Certainty equivalent of risky consumption bundle is the amount of consumption which if provided a, Q:Select the three key elements from the list below which would commonly be found in most definitions, A:Meeting the requirements of the present without endangering the ability of future generations to, Q:Consider a simple economy that produces two goods: pencils and envelopes. In macroeconomics, we also consider the demand and the supply of many of the variables. $1,000 Consider the macroeconomic model shown below. The people in Stataland spend 95% of their income and need basic consumption of 1000 to survive. With free capital flows, this is a very unreasonable assumption. b. Japan = 8% annually Q:What is a defined benefit pension plan and explain the pros and cons? ), Our Experts can answer your tough homework and study questions. 350- Consider the table below, where each row illustrates a macroeconomic relationship between consumption, savings and disposable income (note that C = Consumption, S = Savings, and DI = Disposable Income, Aggregate expenditure equals the sum of consumption, investment, government spending, and net exports. Consumption AE &= \$ 770 c. Slope of the aggregate demand curve. For this econo. Should you borrow the money and buy the new equipment? If you like, think of the interest rate as the one-year interest rate on government securities. (Round your responses to the nearest dollar.). 30000 d. consumption function. T, and T represents lump sum taxes. 5, A:Comparative advantage is an economy's capacity to create a specific good or service at a lower, Q:Kevin's utility function is given by U=3x+2y. Suppose the United States economy is repre- sented by the following equations: In microeconomics, we are careful to distinguish between the demand, the supply and the observed quantity. $7,800 From June 2021 to September 2021 , the euro depreciated against the dollar because more euros are needed to purchase one dollar. Using these models we can, for example, analyze what happens when the government increases consumption, when the central bank increases the target interest rate and when domestically produced goods do well in foreign markets. We will talk about "the classical model", "the IS-LM model", etc. The budget deficit is 100. Write down the LM function. What is the equilibrium level of income?c. Planned investment function Consumption function What is the multiplier for government purchases?d. Aggregate The variables for which we will consider the supply and the demand are: Y, L, K M, C, I, G, X and Im. Our verified expert tutors typically answer within 15-30 minutes. C. 250. -$700 b. coays 440 there isan income tax t=0.1, Study the diagram below and answer the question.Which one of the following statements is false? Let's, Q:What distinguishes a public good from a private good? $1,000 Calculate the real GDP for 2012. Economics is not a subject where you can perform an experiment to find out what is really true. Quantity of capital per hour worked C. Technological change D. Trade $5,000b. What is Nurdsequilibrium level of income? The macroeconomic variables. Calculate the real GDP for 2013. Assume that in 2015, the following prevails in theRepublic of Nurd:Y = $200 G = $0C = $160 T = $0S = $40I (planned) = $30Assume that households consume 80 percent of their income, they save 20 percent of their income, MPC = 0.8,and MPS = 0.2. So we will solve, Q:You enjoy consuming apples (A) and oranges (O). Expert Answer. (b) Compute the marginal propensity to consume. O Create a surplus.