Consider an economy in which autonomous consumption is 800, the marginal propensity to consume is 0.8, investment is 400, government spending is 500, taxation is 400, and net exports are 100.
A. What is the equilibrium GDP in this economy? Show your work. (3 points)
B. What is the savings at this level of GDP? Show your work. (3 points)
C. What are the spending and tax multipliers? Show your work. (4 points)
D. If government spending increases by 200, what is the new equilibrium GDP and what is the increase over the original equilibrium GDP? Show your work. (4 points)
E. If the government increases both spending and taxation by 200, what is the new equilibrium GDP, and what is the increase over the original equilibrium GDP? Show your work. (4 points)
Consider an economy in which autonomous consumption is 800, the marginal propensity to consume is 0.8, investment is 400, government spending is 500, taxation is 400, and net exports are 100.
A. What is the equilibrium GDP in this economy? Show your work. (3 points)
B. What is the savings at this level of GDP? Show your work. (3 points)
C. What are the spending and tax multipliers? Show your work. (4 points)
D. If government spending increases by 200, what is the new equilibrium GDP and what is the increase over the original equilibrium GDP? Show your work. (4 points)
E. If the government increases both spending and taxation by 200, what is the new equilibrium GDP, and what is the increase over the original equilibrium GDP? Show your work. (4 points)
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Data for 9-4 Homework: Problem Set
| GDP | Taxes | DI | C | I | G | C+I+G |
| 1250 | 200 | 800 | 300 | 200 | ||
| 1500 | 200 | 1000 | 300 | 200 | ||
| 1750 | 200 | 1200 | 300 | 200 | ||
| 2000 | 200 | 1400 | 300 | 200 | ||
| 2250 | 200 | 1600 | 300 | 200 | ||
| 2500 | 200 | 1800 | 300 | 200 | ||
| 2750 | 200 | 2000 | 300 | 200 |
This table represents several different potential output scenarios for a hypothetical economy. Based on the information presented, complete the following:
1. Calculate the Disposable Income (DI) at each level of GDP.
2. Calculate total spending (C+I+G) at each level of GDP.
3. What is the equilibrium level of GDP in the economy?
4. When the economy is at equilibrium, what is the level of saving?
5. What is the value of the MPC?
6. What is the value of the expenditure multiplier?
7. What is the value of the tax multiplier?
8. If the government increases spending by $100, what would be the new equilibrium value of GDP?
9. If the government wanted to achieve the same change in GDP as in part 8 by cutting taxes instead of increasing spending, how large would the tax cut need to be?
