MGEA05H3 Study Guide - Final Guide: Excess Supply, Life Insurance, Nominal Interest Rate

• School: UTSC
• Department: Economics for Management Studies
• Course: MGEA05H3
• Professor: All

Document Summary

Multiplier effects of an increase in government purchases of goods & services. Suppose the government increases its spending on final goods and services by 50, (i. e. , g = 50), find the new equilibrium level of output. Logic: ae0 = ac + ai + g + x0 im0 + mpc tr0 mpc t0 d i when g by 50, ae0 by 50. 0 + g) + mpc (1 t tr) y. Aeplanned = (1940 + 50) + 0. 6y = 1990 + 0. 6y. Y* = ae0 x m =50 x 2. 5 = 125. New y* = initial y* + y* = 4850 + 125 =4975. Multiplier effects of changes in government transfers and taxes. Suppose the government lowers lump-sum taxes by 50 (i. e. , t0 = 50): Initial taxes: t = 120 + 0. 15y. New taxes: t = (120 50) + 0. 15y = 70 + 0. 15y. Method 1: find the new aeplanned function & solve for new y*