🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
HomeStudy Guides420,000CA160,000

MGEA06H3 Study Guide - Midterm Guide: Consumption Function, Exchange Rate, Kolmogorov Space

58 views22 pages
olivebeaver965
30 Jan 2015
School
UTSC
Department
Economics for Management Studies
Course
MGEA06H3
Professor
Ata Mazaheri

For unlimited access to Study Guides, a Grade+ subscription is required.

selahanna2005 and 40086 others unlocked
MGEA06H3 Full Course Notes
2
MGEA06H3 Full Course Notes
Verified Note
2 documents

Document Summary

Outline: extend the simple ae model by including government and foreign sector in the model, discuss national saving in an open economy, consider the effects of a change in aggregate expenditure on national income and budget balance. Enriching the model including government and foreign. The government enters the model in the 3 ways: spending on final goods and services, g, it is the government expenditure on final goods and services. Assumption: g is an autonomous variable, (i. e. , its value is given), i. e. , g = constant: collecting taxes, t. Assumption: taxes are positively related to income because the government collects taxes from households and firms to finance its spending: tax function: T = t0 + t1y, where t0 = autonomous taxes t1 = tax rate & 1 > t1 > 0. Ecma06 aggregate expenditure (with government and foreign sector: making transfer payments, tr.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers

Related Documents

MGEA06H3 Lecture Notes - Bundesautobahn 45, Shortage, Fallacy
blueplatypus977
MGEA06H3
Final Exam
Study Guide
MGEA06H3 Study Guide - Midterm Guide: Opportunity Cost, Fallacy, Real Interest Rate
olivebeaver965
MGEA06H3 Lecture Notes - Canadian Dollar, Consumption Function, Exchange Rate
olivepig122

Related Questions

The Modified Keynesian Model

Y = C + I + G + X – IM … equilibrium condition in a 4-sector model where:

C = 150 + 0.9DI … consumption function

I = 50 … autonomous investment

G = 100 … autonomous government spending

X = 200 … autonomous exports

IM = 100 … autonomous imports

And also:

DI = Y – T + Tr T = 0 … autonomous taxes

Tr = 0 … autonomous transfer payments

YF = 5000 … full-employment Y

1. Solve for the equilibrium level of real output/income (Y*) in this economy.

2. Given the model above, net exports equal $________. Does this represent a trade deficit or trade surplus?

3. Given the model above, the federal budget has a (deficit/surplus) equal to $________.

4. What is the value of the MPC? … the value of the MPS?

5. Calculate the “oversimplified” expenditure multiplier.

6. Suppose that full-employment (YF) equals $5000. Is there a recessionary or inflationary output gap?

7. (Refer to question “6”.) How much is the gap equal to?

8. Suppose the government chooses to eliminate the gap by using expansionary fiscal policy (i.e., increasing G). Given the numbers above, by how much would government spending (G) need to increase to achieve the goal of full-employment?

9. Suppose instead that the government decided to lower taxes to eliminate the output gap in question “6”. How much would taxes need to fall to achieve the goal of full-employment?

10. Which action (raising G or lowering T) has the largest effect on the federal budget deficit and the national debt?

11. Suppose the national debt equaled $6000 before the tax cut (refer to question “9”). What would be the value of the national debt after this policy action?

This year, households in the economy receive $20 billion in labor income (wages, salaries, and benefits) and $14 billion in property income (rents, interests, and profits). Also this year, households pay $8 billion in taxes and spend $18 billion on consumption goods. Firms' investment (their annual spending in capital stock) is $8 billion. The government sector runs a balanced budget and the trade balance is -$2 billion (i.e. X - Q = -2). Determine the net foreign borrowing and stock sales in this economy in the year. (Type your answer in billion $.)

On the planet Omicron Persei 8, government spending is $1000, net taxes are $1200, and planned investment is $1400. Consumers spend according to the equation C = 100 + 0.8Yd, where Yd represents disposable income. Given this information, fill out the table below to determine which of the output levels represents a macroeconomic equilibrium, then answer the questions that follow. Output (Income) Y Net Taxes T Disposable Income Yd Consumption C Planned Investment I Government Purchases G Planned Aggregate Expenditure AE Unplanned Inventory Change 6200 1200 5000 3850 1400 1000 6250 -50 6700 1200 5500 4225 1400 1000 6625 75 7200 1200 6000 4600 1400 1000 7000 200 7700 1200 6500 4975 1400 1000 7375 325 8200 1200 7000 5350 1400 1000 7750 450

An a. Which level of output is a macroeconomic equilibrium? There is no level of equilibrium based on inventory levels.

b. Is the government budget balanced, in deficit, or surplus, and by how much? Since the government is spending less than it is collecting in taxes, we are showing a surplus.

c. Find the marginal propensity to consume, and the marginal propensity to save. d. Find the government spending multiplier. If the government wanted to increase the equilibrium level of income by $1,000, how much would it have to increase government purchases? e. Find the tax multiplier. If net taxes were lowered by $100, what effect would it have on the equilibrium level of income? Give a specific numerical answer.