ECON 704 Midterm: 704 mq18bJerenyGreenwood

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turquoisegnu128

31 Jan 2019

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Spendomania is a country inhabited by many identical consumer/workers. 1x t=1 (cid:12) t(cid:0)1[u (ct) + v (1 (cid:0) lt) + g(gt)]; where ct is period-t consumption, lt is period-t work e ort, and gt is govern- ment spending on a public good. Output, yt, is produced by (cid:133)rms in line the following constant-returns-to-scale production function: yt = f (kt; lt); where kt is the amount of capital rented by (cid:133)rms. Taxes are used solely to (cid:133)nance government spending, gt, on a public good, in this case statutes of former presidents. Spendomania has a balanced budget requirement in its constitution. Congressman sharp says that it would be better to replace the labor income tax rate, (cid:21)t, with a tax rate on consumption, t. he claims that this tax is neutral on labor e ort and promotes savings.

Related Questions

Question

IS Function

C=600 + (.7)(1-t)Y

t=.15

I=1500-75(i)

I=6(6%)

G=1000

LM Function

L=.3 Y-65(i)

M/P=900

a. What is the equilibrium income level and interest rate

b. Suppose there is an increase in t from .15 to .20. What will be the change in the equilibrium level of income and interest rate?

c. Suppose there is a decrease in government expenditures (G) from 1000 to 800 what will be the change in the equilibriu, income level and interest rate?

d. Suppose there is an increase in the money supply from 900 to 1200 what will be the change in the equilibrium level on income and interest rate?

e. Today Congress and the President are debating the correct economic policy to raise the debt limit by trying to balance the budget. Here are 3 proposals:

i Cut government expenditures (G) while keeping taxes fixed

ii Increase the tax rate t while keeping government spending G fixed

iii Increase the tax rate t and decrease government spending G

Given your answers in a-e above what policy would you support be implemented. Explain

Consider the One-Period Model.

Suppose that the production function that the rm operates is now given by
Y = z(G)F(K;N^d); with z(G) = ( z bar + aG);
where z > 0, a > 0, and G > 0 is government spending.

Notice that in this framework government spending makes firms more productive (for
example, government expenditures on roads and bridges lowers the cost of transportation).
The budget constraint for the government is G = T, where T are lump-sum taxes.

1. Suppose that the government decides to increase G. Using a diagram, determine the
equilibrium e ects of this shock on aggregate output, consumption, employment, and
the real wage. Show that increasing G can potentially increase welfare.

2. Compare your results with the case of unproductive government spending studied in
class (i.e., when a = 0).

please show the diagram (Consumption on y aixs and leisure on x axis) for question 1

what I found was increase in G and Z happen at the same time!

Thanks!

blushdolphin193

10.

The long-run aggregate supply curve (LRAS) is Y = Yf, which depends on the amounts of resources and the level of technology innovation. If a country has more resources and better technology, which of the following is true?

		A. The LRAS curve will shift to the right.
		B. The SRAS will shift to the right.
		C. The SRAS will shift to the left.
		D. Only A and B.
		E. Only A and C.

11.

Suppose the wage rates of workers are based on the expected price level. If there is an unexpected increase in AD, it will cause the actual price level to increase. Then workers should raise their expected price level and negotiate a higher wage rate. Then which of the following is most likely to be true when the expected price increases?

		A. The SRAS curve will shift rightward.
		B. The SRAS curve will shift leftward.
		C. The LRAS curve will shift leftward.
		D. Only A and C.
		E. Only B and C.

12.

Suppose the economy is in the long-run equilibrium, i.e., Y = Yf, and there is an unexpected decrease in AD. Assume that Yf is fixed, then which of the following is most likely to be true?

		A. The SRAS curve will shift to the right toward the new long-run equilibrium.
		B. The SRAS curve will shift to the left toward the new long-run equilibrium.
		C. In the new long-run equilibrium, price level will be higher.
		D. Only A and C.
		E. Only B and C.

13.

The short-run (SR) equilibrium is the intersection between AD and SRAS, and long-run (LR) equilibrium is the intersection between AD and LRAS. Every LR equilibrium is a SR equilibrium, but a SR equilibrium is not always the LR equilibrium. If an economy is operating at a SR equilibrium where Y > Yf, which of the following will occur in the process toward the new LR equilibrium when the economy corrects itself?

		A. Price increases.
		B. Real GDP decreases.
		C. Unemployment rate falls.
		D. Only A and B.
		E. Only B and C.

14.

From the Keynesians, Y = C + I + G + NX can be transformed into a theoretical model. In particular, assume that the consumption C = A + mpc (Y-T), where A is a constant, mpc is the marginal propensity to consume, Y is national income and T is income taxes. Suppose in the goods market equilibrium, aggregate expenditure = national income such that the two Y's will be the same from Y = A + mpc (Y-T) + I + G+ NX. . Suppose C = 400 + 0.75(Y â T). G = 100, I = 100, T = 100, and NX = 150, what is the Y in the goods market equilibrium? (All of the variables are in terms of million dollars)

$ million
Please enter a whole number, with no decimal point.

15.

Continue to assume that C = 400 + 0.75 (Y - 100), I = 100, and NX = 150. But the government now increases spending from 100 to 200, how much is the new Y in the goods market equilibrium?

$ million
Please enter a whole number, with no decimal point.

16.

Continue to assume that C = 400 + 0.75 (Y - 100). Then which of the following is true?

		A. The government spending multiplier = 4.
		B. The tax multiplier = 3.
		C. If the government increases spending by $50 million, and at the same time increases taxes by $50 milion to balance the budget, AD will shift to the right by $50 million.
		D. Only A and C.
		E. Only B and C.

17.

Suppose the federal government needs to balance the budget, which means that when the government spending increases, taxes must increase equally. In this case, government spending multiplier is called the balanced-budget multiplier, defined as the increase in real GDP/increase in government spending. By following the example from the previous question, how mcuh is the balanced-budget multiplier?

Please enter a whole number, with no decimal point.

pearseal539

ECON 704 Midterm: 704 mq18bJerenyGreenwood

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