Questions
to Prepare Chapters 9, 10 and 11
-
Consider
the following equations for a closed economy (no foreign sector) with government.
C
= 2500 + 0.75Yd
I
= 1000
G
= 2000
T=
1000
Calculate the equilibrium
value of Income. Show all your work
-
Consider
the following equations for a closed economy (no foreign sector) with government.
C
= 2500 + 0.75Yd
I
= 1000
G
= 2000
T=
1000
Suppose that the economy
is not at equilibrium and
instead output/income is Y=24,000
a)
At this value of income/output(Y=24,000)
calculate the change in inventories. Be sure to specify if it is a positive
change (an increase) or a negative change (a decrease). Show all your work
b) At
this value of income/output(Y=24,000)
and given your answer for the change in inventories what would you expect
firms to do in terms of output levels? (Increase/decrease/leave unchanged)
-
Consider
the following equations for a closed economy (no foreign sector) with government.
C
= 2500 + 0.75Yd
I
= 1000
G
= 2000
T=
1000
Starting from the original
equilibrium value, use the multiplier to calculate the CHANGE in equilibrium
output that would result if the government were to decrease
government spending by 600.
a)
What would be the impact (increase/decrease/remain the
same?) of this policy on consumption?
To answer this question, calculate the value of consumption at full employment
and compare it with the original value.
b)
What would be the impact (increase/decrease/remain the
same?) of this policy on the government’s budget deficit/surplus? To answer this question, calculate
the new surplus/deficit and compare with the original situation.
-
Consider
the following equations for a closed economy (no foreign sector) with government.
C
= 2500 + 0.75Yd
I
= 1000
G
= 2000
T=
1000
Starting from the original
equilibrium value, use the multiplier to calculate the CHANGE in equilibrium
output that would result if the government were to decrease taxes by 600.
a)
What would be the impact (increase/decrease/remain the
same?) of this policy on consumption? To answer this question, calculate the value of consumption
at full employment and compare it with the original value.
b)
What would be the impact (increase/decrease/remain the
same?) of this policy on the government’s budget deficit/surplus? To answer this question, calculate
the new surplus/deficit and compare with the original situation.
-
Consider
the following equations for a closed economy (no foreign sector) with government.
C
= 2500 + 0.75Yd
I
= 1000
G
= 2000
T=
1000
Starting from the original
equilibrium value, use the balanced budget multiplier to calculate the NEW
EQUILIBRIUM OUTPUT LEVEL that would result if the government decreases government spending by
500 and at the same time, decrease taxes by 500. Answer: Show
all your work
a)
What would be the impact (increase/decrease/remain the
same?) of this policy on consumption? To answer this question, calculate the value of consumption
at full employment and compare it with the original value.
b)
What would be the impact (increase/decrease/remain the
same?) of this policy on the government’s budget deficit/surplus? To answer this question, calculate
the new surplus/deficit and compare with the original situation.
-
Consider
the following equations for a closed economy (no foreign sector) with government.
C
= 2500 + 0.75Yd
I
= 1000
G
= 2000
T=
1000
Starting from the original
equilibrium value, assume that the economy is in a recession and that the
full employment level of output is Y = 29,000.
a)
Use the multiplier to calculate the necessary CHANGE
in government spending that would get the economy out of the recession and
into full employment.
b)
What would be the impact (increase/decrease/remain the
same?) of this policy on consumption? To answer this question, calculate the value of consumption
at full employment and compare it with the original value.
c)
What would be the impact (increase/decrease/remain the
same?) of this policy on the government’s budget deficit/surplus? To answer this question, calculate
the new surplus/deficit and compare with the original situation.
-
Consider
the following equations for a closed economy (no foreign sector) with government.
C
= 2500 + 0.75Yd
I
= 1000
G
= 2000
T=
1000
Starting from the original
equilibrium value, assume that the economy is in a recession and that the
full employment level of output is Y = 29,000.
a)
Use the multiplier to calculate the necessary CHANGE
in taxes that would get the economy out of the recession and into full employment.
b)
What would be the impact (increase/decrease/remain the
same?) of this policy on consumption? To answer this question, calculate the value of consumption
at full employment and compare it with the original value.
c)
What would be the impact (increase/decrease/remain the
same?) of this policy on the government’s budget deficit/surplus? To answer this question, calculate
the new surplus/deficit and compare with the original situation.
-
Consider
the following equations for a closed economy (no foreign sector) with government.
C
= 2500 + 0.75Yd
I
= 1000
G
= 2000
T=
1000
Starting from the original
equilibrium value, assume that the economy is in a recession and that the
full employment level of output is Y = 19,900.
a)
Suppose the government wants to leave the deficit/surplus
unchanged. Use the multiplier to calculate the necessary CHANGE in government
spending and taxes that would get the economy out of the recession and into
full employment without increasing the deficit/surplus.
b)
What would be the impact (increase/decrease/remain the
same?) of this policy on consumption? To answer this question, calculate the value of consumption
at full employment and compare it with the original value.
c)
What would be the impact (increase/decrease/remain the
same?) of this policy on the government’s budget deficit/surplus? To answer this question, calculate
the new surplus/deficit and compare with the original situation.
9.
Use the diagram below to show the effect of each of the following events on
AE, AD, AS, prices and GDP. Label the axes, label the lines and draw any shifts.
Identify clearly the original values: label these original values Y0, AE0,
AD0, AS0, P0, GDP0. Identify clearly the NEW values: label these
NEW values Y1, AE1, AD1, AS1, P1, GDP1. Write a complete
explanation of the chain of events starting with the event ending with the
change in GDP and prices.
a. A round of collective bargaining in the industrial sector leads to relatively
high wage increases
b. Pessimistic business forecasts lead businesses to reduce their planned
investment
c.
An announcement of major increases in social security retirement benefits
leads people to reduce their personal saving.
d. The population grows, increasing both the labor force and the demand for
goods and services.
e. A massive earthquake which destroys a large number of factories is followed
by a major increase in industrial investment, as firms attempt to replace
their productive capacity.
f.
Prices Increase (decrease): in BOLD because changes in prices
do not shift the AD line!
g. NX Increase (decrease)
h. Exports Increase (decrease)
i. Imports Increase (decrease)
j. Wealth Increase (decrease)
k. Interest rates Increase (decrease)
l. Technological Improvement
m. Government spending Increase (decrease)
n. Taxes Increase (decrease)
o. Transfers Increase (decrease)