11. What is the significance of the diagram in #10. 12. In considering the current economic condition, the Biden administration may want to ( increase decrease ) govermment spending. Select the correct one and briefly explain why.
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- Please note that you are only helping me with 2.1 and 2.2 All the other quesitions are just for refrence if you need it. Thank you so much for your time! Figure 1: Hayek’s (Classical) AD-AS Model (image normally goes here) Why does Hayek’s aggregate supply curve always lead to an equilibrium level of national output equal to the full-employment level of real GDP? Hayek says that markets will heal themselves and that government should not intervene. How does the AD-AS model reflect Hayek’s idea that governments cannot increase real GDP beyond the level that the free market economy is able to produce? Do you believe that the Hayek’s classical AD-AS model explain the factors that cause changes (shifts) in AS realistically? Why or why not? Figure 2: Keynes’s AD-AS Model(Image nomrally goes here) 2.1. Changes in which factors could cause aggregate demand to shift from AD to AD1? What could happen to the unemployment rate? What could happen to the inflation rate?(In simplier…Consider a simple Keynesian income-spending model of an economy described by the following equations 1. C= 250 + 0.75Yd TR = 200 T = 0.1Y 1=250 %3D G= 600 X = 350 %3D M=0.15Y (a) Calculate the equilibrium income level. (b) Sketch this equilibrium position using a two-dimensional graph. If potential GDP is 3,570 what is the size of the output gap? If public sector spending on goods and services is increased by 50, what is the new equilibrium level of income? How much should public spending have been increased by in order to have closed the output gap? (c) [All calculations to one decimal point. You must report your calculations.] MacBook Air 888 000 F1 F2 F3 F4 FS F7 F10 £ # @ € 2 $ % & 3 4 5 6 7 8 %3D Q E R Y A S F V alt cmd cmd VAggregate Demand I- Work It Out Question 1 In the Keynesian cross model, assume that the consumption function is given by C = $85 +0.7(Y – T) Planned investment is $200; government purchases and taxes are both $50. d. What level of government purchases is needed to achieve an income of $1160? Assume taxes remain at $50. G = $ e. What level of taxes is needed to achieve an income of $1160? Assume government purchases remain at $50. T= $
- Please note that this is a multi part quesition; thank you so much for your time and effort it means so much to me! Figure 1: Hayek’s (Classical) AD-AS Model (Image normally goes here) Part 1: Why does Hayek’s aggregate supply curve always lead to an equilibrium level of national output equal to the full-employment level of real GDP? Part2: Hayek says that markets will heal themselves and that government should not intervene. How does the AD-AS model reflect Hayek’s idea that governments cannot increase real GDP beyond the level that the free market economy is able to produce? Part 3: Do you believe that the Hayek’s classical AD-AS model explain the factors that cause changes (shifts) in AS realistically? Why or why not?Question 1Explain fully how the equilibrium output, income, and employment are determined in the Keynesian model. Illustrate with an appropriate graph. Suppose that the equilibrium GDP is $500 billion and the full employment GDP is $600 billion. If the slope of the AE curve is 0.8, how much would the government have to change its expenditure to get the economy to full employment equilibrium? Illustrate your answer with an appropriate graph, and show the numerical values in your graph. Explain your understanding of the multiplier process used in answering part B.2. Consider a Keynesian IS-LM model for national income: Y=C(Y-T) + I (r) + G L (r,Y)= M³ (b) IS: LM: where we consider Y and r as the endogenous variables and G, M³, and T as the exogenous variables. Find the effect of a lump-sum tax, T, change on r, i.e., Or/T, using the implicit function theorem.
- Suppose that government is included in the short-run model of national income, where the level of government expenditure is $100 billion and the net tax rate is 50%. Use the line drawing tool to draw and properly label the budget balance function on the graph at right. Make sure that the line extends from Actual National Income level 0 to 1000. Carefully follow the instructions above, and only draw the required objects. Budget Balance ($ billions) The Budget Balance Function 480- 440- 400- 360- 320- 280- 240- 200- 160- 120 80 40- 어 -40- 200 400 -600 800 1000 -80- -120- -160- -200- Actual National Income ($ billions)The economy is described by the following functions: C = 110+0.8YD Tx = 20 Tr = 40 I = 70 G = 80 Nx = 30 1) Find the multiplier associated with government purchases. 2) Suppose government purchases increase by 20. By how much would the equilibrium output increase? 3) Illustrate change in government purchases on the Keynesian Cross diagram.Consider the graph at right showing an economy in recession. Aggregate demand is currently at AD. Equilibrium currently occurs at Eo. If aggregate demand was ADF, there would be full employment. Suppose the government engages in fiscal policy that results in full crowding out. Using the line drawing tool, draw the new demand curve that shows full crowding out. Carefully follow the instructions above, and only draw the required object. Price level Eo EF ADO F Real GDP per Year ($ trillions) SRASO ADF O U
- Question 1 (14 marks) Consider the following numerical example of the simple Keynesian model with no government spending, taxes or a foreign sector (all figures in R millions): C = 100 + 0,9Y I = 50 Answer the following questions. What is the value of the marginal propensity to consume (MPC) in this model? (2) What is the value of the multiplier in this economy? (3) Calculate aggregate spending in this economy (2) Calculate the equilibrium level of output. (3) Suppose the level of output that creates full employment (Yf) in the economy is 1 800. Determine the level of investment spending that would create full employment in this economy. (4)It is found that the consumption function for the economy is C = 50 + 0.8 Y d . Current level of output is 8800 and the potential GDP is 9000. Assuming the Keynesian view of the short run, answer the following questions. Illustrate this economy using a carefully labeled diagram. What is a larger concern for this economy: unemployment or inflation? If the economic policy makers want to bring the level of output to the potential GDP by changing the government expenditures (G), how much do they need to change G? Be sure to indicate whether the change is an increase or decrease. True or False and explain: If the policy in part c was successful, the unemployment rate will be zero.The consumption function is C = $400 billion +0.6Y and the government wants to stimulate the economy. By how much will aggregate demand at current prices shift initially (before multiplier effects) with: a) a $20 billion increase in government purchases? b) a $20 billion tax cut? c) a $20 billion increase in income transfers? What will the cumulative AD shift be for:
