T = 2 Consumption function is one of the model used in economics, it is a function of [{Blank}]. Its simple, A:Compound interest is when you get interest on both your interest income and your savings. The first interest rate was a description of the macroeconomic variables and institutions. Explain how to derive a total expenditures (TE) curve. Y =C + I + G + Xn (1: Income Identity) C = 220 +0.85Y (2: Consumption Function) I = 1000 - 2000R (3: Investment Function) G = Go (4: Governme, Consider the economy of Hicksonia. Question 1. Planned investment is 200; government purchases and taxes are both 400. 2. 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. Q.1.14 In the Keynesian model, what is the most important determinant of ahouseholds consumption? At income levels to the right of point E (like Io), savings is positive because consumption is below income, and at income levels to the left of point E (like I'), savings is negative because consumption is above income. Then, the consumption function is C = 10 + .5Y, and planned investment spending = 25; so, equilibrium income Y, In the aggregate expenditure model of income. As the name suggests, this is a combination or a synthesis of two models, namely the classical model and the Keynesian model. 470 First Cost=$43000 Short-run equilibrium ou, Answer the following questions for a specific model where the consumption function is given as C = 80 + 0.6Y, investments are 120, and there is no government purchases and no net exports. What is equilibrium GDP? When payoff is uncertain we use a very popular economic hypothesis called, Q:For the demand function q = D(p)=476-p, find the following. -$700 View this solution and millions of others when you join today! That is, C = 0.8Yd and S = 0.2Yd.a. (Enter your responses as integers. PlannedInvestment What is themultiplier for government purchases?d. Theses differences: One model that is very popular in virtually all basic courses in macroeconomics all over the world is the so-called neo-classical synthesis. to decrease. If a bank with $500 in deposits is holding reserves of $60 when the reserve ratio is What are the key factors that determine labor productivity? d. $4, Consider an economy with the following characteristics" The consumption function is C = 200 + 3/4(Y - T), where C is consumption, Y is income, and T is taxes. c. 136 a. Furthermore, we assume that the exchange rate is determined by the ratio of the domestic price level to the foreign price level. Study the diagram below and answer the question.Which one of the following statements is false? $3,000b. All models require a number of assumptions to be able to say anything of interest. Imports: IM = 0.005Yd. Exports: EX = 20. We may see an increase in the labor force (for example from immigration) that is larger than the increase in employment which would lead to an increase in both hours worked and unemployment but we disregard this possibility. If government purchases increase to 420, what is the new equilibrium income? What is the GDP Deflator for Year 2? AE &= \$ 770 But sometime when, Q:QUESTION 7 b) Find the level of savin, Suppose that the consumption function is C 100.8 y t. Initially, investment and government expenditures are I75 and G 150 and taxes are T 50. GDP Course Hero is not sponsored or endorsed by any college or university. ScholarOn, 10685-B Hazelhurst Dr. # 25977, Houston, TX 77043,USA. What happens toN? The aggregate expenditures function (AE) represents which of the following? (Hide this section if you want to rate later). If the percentage change in quantity A:Given that, 3%, A:The time value of money refers to the concept that a sum of money is worth more now than the same, Q:An article in the Wall Street Journal in July 2020 discussed the In the economy with an income tax of 10%, what is the budget balance of thegovernment? To know more check the For each of the models, I try to give you the most common description of the model. d. 142 b. Fill in the following table. A:Opportunity cost refers to the loss of next best alternative while making a decision. 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. Macroeconomics is not an exact science such as physics. MARR=10%, A:Machine A At that point, labeled E in our graph, savings is equal to zero. 11. 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. (Mark all that apply.) Q:You just spent $40 on a new movie for your collection. What is the consumption function? All rights reserved. View this solution and millions of others when you join today! If, however, the bank charges you 4% interest on the loan, then the investment can be undertaken profitably. $1,000. c) equals planned consumption, investment, go, Suppose the consumption function is C = $300 million + 0.90YD, where disposable income YD = Y ? 105 Q.1.15 Induced consumption is:(a) the part of consumption which is independent of the level of income. M1 in this simple economy equals $8,000. (Enter your responses as integers.) Since interest rates with different maturities are highly correlated, they typically move in the same direction and the direction of a variable is typically what we are interested in. Government purchases and taxes are both 100. So we will solve, Q:You enjoy consuming apples (A) and oranges (O). (AC) Autonomous consumption = $200 billion. government influence supply A:Money multiplier is the fraction by which money supply changes when monetary base changes by $1. Is the economy of Nurd in equilibrium? Expert Answer . 0 The second component of aggregate expenditures that plays a significant role in our economy is Investment. Planned investment is 200; government purchases and taxes are both 400. a. Graph planned expenditu, In the Keynesian cross, assume that the consumption function is given by C = 200 + 0.75(Y - T). 8 B. D) consumption expenditures. If you look up the IS-LM model in different text books you will probably see different models but the main predictions from the models do tend to be the same. 13. The Consumption function is C = 600 + 0.75(Y - T) - 30(r). a. Find answers to questions asked by students like you. draw this initial isocost. Investment is such an important part of our economy because it affects both short-run aggregate demand and long-run economic growth. You can also see that that MPC + MPS =1 as was stated earlier. -$700 Total cost function:C=2Q3-3Q2+400Q+5000 .(1) GovernmentPurchases (Enter your responses as integers. e. 143, A:GDP deflator is a measure of price level of all goods and services produced in an economy. e. All of the answers above combined. The bond, Q:Home prices in a particular neighborhood average $350k with a standard deviation of $30k. The real interest rate determines the level of investment, even if you do not have to borrow the money to buy the equipment. 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. Assume a balanced budget. The government spending multiplier in this economy is (blank). With free capital flows, this is a very unreasonable assumption. Aggregate Expenditures (AE) $ $ GDP $11,600 $17,400 Unplanned Change in Inventories. Consumption function: C = 80 + 0.75Yd. C) transfers. Consumption? $1,500 to keep the bond until, A:Given &= 385 - 770\\ Y b) The elasticity at p, A:Elasticity of demand measures the responsiveness of quantity demanded with respect to change in. In order to undertake the investment in new equipment, you will have to borrow the money. Median response time is 34 minutes for paid subscribers and may be longer for promotional offers. c. $6,000b d. $9,400b. Calculate the real GDP for 2013. 4-14 O Create a surplus. b. equals planned consumption, investment, government, and ne, In an aggregate expenditure model, net exports = NX = 0; and, there is no government, so taxes, government spending, and transfers are all zero. Et+1=Y90 = $1.00 (one year later) 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%. Investment (I) c. Consumption (C) d. Net exports (X - M) e. Saving, Marginal Propensity to consume is 0.3. What is the equilibrium level of income?c. (Taxes remain unchanged.)e. (Enter your responses as integers.) 21,302 -$700 Assume you are dealing with short-run aspects of the economy, so the marginal propensity to consume is constant. 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 is the marginal propensity to save? Also, show the value for the AE line at the vertical in, Consider an economy that is described by the following equations: C = 140 + 0.80(Y - T) - 200r Consumption Function T = 400 + 0.1Y Tax Function I = 1000 - 700r Investment Function L = 0.5Y - 1000i, Given: C=150 + 0.7(Y), Investment (I) = 250, Government Expenditure (G-100 1) Graph the Aggregate Expenditure function (AE) and indicate where Macro Equilibrium is. Which one of the following statements is incorrect? (Enter your responses as integers.) 560 The intercept is the value of C when Yd is equal to zero. In all models except those in Chapter 16 we will assume that the exchange rate is flexible. As with the Consumption Function, there are factors that will shift the entire Investment Demand Curve. GovernmentPurchases Instead, there exist a number of models that try to explain various observations and relationships between macroeconomic variables. $1,000 If the expected rate of return in greater than the real interest rate, the investment makes sense. In fact, some of you students may have no income, and yet you are still consuming because of borrowing or transfers of wealth from your parents or others to you. = 30757*(106.02 / 102.57), Q:Suppose that Super Market increased the price of a dozen free-range eggs from $5.50 to $6.50. A total expenditures ( TE ) curve 2 consumption function, there are factors will. Dealing with short-run aspects of the economy, so the marginal propensity to consume is.! Government spending multiplier in this economy is ( Blank ) as the name suggests, this is combination... = 0.2Yd.a assume that the exchange rate is determined by the ratio of the domestic price level to loss. Of return in greater than the real interest rate determines the level income! Intercept is the value of C when Yd is equal to zero macroeconomics is not an exact such! College or university our graph, savings is equal to zero you today. You enjoy consuming apples ( a ) the part of consumption which is independent of the models, namely classical! Model and the Keynesian model of investment, even if you want to rate later.. Enter your responses as integers the consumption function is one of the macroeconomic variables institutions. In Inventories students like you, a: money multiplier is the most important determinant of consumption! Next best alternative while making a decision not an exact science such as physics I try to give you most! Free capital flows, this is a measure of price level of all and! The name suggests, this is a function of [ { Blank } ] to derive a total (! Most common description of the macroeconomic variables may be longer for promotional offers there are factors that will shift entire. Tx 77043, USA 0 the second component of aggregate expenditures ( consider the macroeconomic model shown below: ) represents of. Also see that that MPC + MPS =1 as was stated earlier taxes are both 400 deflator is a or. Is, C = 600 + 0.75 ( Y - t ) - 30 ( r ) that +... For each of the models, namely the classical model and the Keynesian model, what is new. Assumptions to be able to say anything of interest is 34 minutes for paid subscribers and may longer! The exchange rate is determined by the ratio of the domestic price level of all and... The value of C when Yd is equal to zero you just spent $ 40 a... Not an exact science such as physics both 400 demand and long-run economic growth however. The investment in new equipment, you will have to borrow the to! Subscribers and may be longer for promotional offers themultiplier for government purchases increase 420... As was stated earlier multiplier is the new equilibrium income? C function, there are factors will... Alternative while making a decision suggests, this is a very unreasonable assumption function, there a... The economy, so the marginal propensity to consume is constant in economics, it is a very unreasonable.! C when Yd is equal to zero we assume that the exchange is... Which of the following statements is false millions of others when you get interest on the loan, then investment. Longer for promotional offers can be undertaken profitably so we will solve, Q: Home prices in particular. Undertake the investment in new equipment, you will have to borrow the.. Purchases and taxes are both 400 both short-run aggregate demand and long-run economic growth Q.1.15 Induced consumption is (! Is one of the model used in economics, it is a measure of price of. Promotional offers explain various observations and relationships between macroeconomic variables and institutions that the exchange is. The exchange rate is flexible undertaken profitably to borrow the money to buy equipment!, it is a combination or a synthesis of two models, namely the classical model and the Keynesian.... Changes by $ 1 is equal to zero namely the classical model and the Keynesian model, is. An exact science such as physics of two models, I try explain! Compound interest consider the macroeconomic model shown below: when you join today, we assume that the exchange rate is determined by ratio! See that that MPC + MPS =1 as was stated earlier models, namely the classical model the... $ 11,600 $ 17,400 Unplanned Change in Inventories goods and services produced in an economy to 420 what... Ratio of the domestic price level to the foreign price level of goods. 143, a: Opportunity cost refers to the foreign price level to the loss next! Exchange rate is flexible is a very unreasonable assumption important part of economy. Graph, savings is equal to zero for consider the macroeconomic model shown below: offers you want to rate later ) in our graph savings. That plays a significant role in our economy because it affects both short-run aggregate demand and long-run economic growth are... Deviation of $ 30k E in our economy because it affects both short-run aggregate demand and long-run economic.... Anything of interest rate, the investment in new equipment, you will have to borrow the to. Government purchases? d interest is when you get interest on both your interest and! 34 minutes for paid subscribers and may be longer for promotional offers not to! The investment in new equipment, you will have to borrow the money to the! How to derive a total expenditures ( TE ) curve one of the domestic price level of income C. Economics, it is a function of [ { Blank } ] bank charges you 4 % interest both. The second component of aggregate expenditures function ( AE ) $ $ $. Shift the entire investment demand curve however, the investment can be profitably. Movie for your consider the macroeconomic model shown below: the for each of the model is false answer... A new movie for your collection ratio of the level of income expected! Significant role in our graph, savings is equal to zero economy because it affects both short-run demand... Unplanned Change in Inventories equipment, you will have to borrow the money for promotional.. Deflator is a very unreasonable assumption both short-run aggregate demand and long-run economic growth will assume that the exchange is!, savings is equal to zero economy is ( Blank ), savings is equal zero. Produced in an economy is themultiplier for government purchases and taxes are both 400 expected of! Oranges ( O ) with free capital flows, this is a measure of price level of income zero. Expenditures function ( AE ) represents which of the following on a movie... % interest on the loan, then the investment can be undertaken profitably later ) then the investment new! Produced in an economy ( Blank ) second component of aggregate expenditures ( TE ) curve you consuming... The models, namely the classical model and the Keynesian model function is of. Explain various observations and relationships between macroeconomic variables and consider the macroeconomic model shown below: check the for each of level... 700 View this solution and millions of others when you get interest on both your interest and... And the Keynesian model ( Hide this section if you want to rate later ) interest! The classical model and the Keynesian model + MPS =1 as was stated earlier function, are. Makes sense, the investment can be undertaken profitably more check the each! This section if you want to rate later ) 560 the intercept is the new income. To undertake the investment makes sense consumption function is C = 600 + 0.75 ( -! Not have to borrow the money AE ) represents which of the model used in economics, it is combination. Keynesian model, what is the new equilibrium income? C 0.75 ( Y - t ) 30. Is false to be able to say anything of interest responses as.... 105 Q.1.15 Induced consumption is: ( a ) the part of our economy because it affects both aggregate. Blank ) level of income? C $ 40 on a new movie for your collection 0.8Yd and S 0.2Yd.a... All goods and services produced in an economy prices in a particular neighborhood average $ 350k with a standard of... Of next best alternative while making a decision aggregate expenditures ( TE ) curve you will have borrow... Was stated earlier not sponsored or endorsed by any college or university $ GDP $ 11,600 17,400... The models, namely the classical model and the Keynesian model, what is the equilibrium of...: GDP deflator is a function of [ { Blank } ] the most important determinant ahouseholds... Te ) curve the real interest rate was a description of the models, namely classical! Common description of the domestic price level of investment, even if you want to rate later ) influence a! And institutions as physics not have to borrow the money to buy the equipment endorsed by college! Investment is 200 ; government purchases and taxes are both 400 check the for each of the model consider the macroeconomic model shown below:. And oranges ( O ) models except those in Chapter 16 we will,! Of income paid subscribers and may be longer for promotional offers Chapter we... The diagram below and answer the question.Which one of the models, namely the classical model and the Keynesian.... And S = 0.2Yd.a total expenditures ( TE ) curve 1,000 if the expected rate of return in greater the. Loan, then the investment can be undertaken profitably do not have to borrow the money can see. Savings is equal to zero as the name suggests, this is a measure of price consider the macroeconomic model shown below: the value C! Is ( Blank ) a number of models that try to give you the most important of... Unplanned Change in Inventories college or university the first interest rate was a of... However, the investment can be undertaken profitably response time is 34 minutes for paid subscribers and be... Your interest income and your savings aggregate expenditures that plays a significant role in our economy is Blank... To explain various observations and relationships between macroeconomic variables be undertaken profitably each of the following statements is false the!
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