7. Question 3. The consumption function Consider the hypothetical country of Kejimkujik. Suppose that national income in Kejimkujik is $12 billion, households pay $4 billion in taxes, household consumption is equal to $6 billion, and the marginal propensity to consume (MPC) is 0.625. On the following graph, use the blue line (circle symbol) to plot the economy's consumption function. ? CONSUMPTION (Billions of dollars) 20 18 16 14 12 10 8 6 2 0 0 10 14 12 16 DISPOSABLE INCOME (Billions of dollars) 18 20 Consumption Function

7. Question 3. The consumption function Consider the hypothetical country of Kejimkujik. Suppose that national income in Kejimkujik is $12 billion, households pay $4 billion in taxes, household consumption is equal to $6 billion, and the marginal propensity to consume (MPC) is 0.625. On the following graph, use the blue line (circle symbol) to plot the economy's consumption function. ? CONSUMPTION (Billions of dollars) 20 18 16 14 12 10 8 6 2 0 0 10 14 12 16 DISPOSABLE INCOME (Billions of dollars) 18 20 Consumption Function

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section9.A: The Simple Algebra Of Income Determination And The Multiplier

Problem 4TY

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3. The consumption function Suppose that national income in a country is $30 billion, taxes paid by households is $10 billion, household consumption is $18 billion, and the marginal propensity to consume (MPC) is 0.8. On the following graph, use the blue line (circle symbol) to plot the economy's consumption function. CONSUMPTION (Billions of dollars) 50 45 40 35 30 25 20 15 10 5 0 0 5 + + + 10 15 20 25 30 35 40 DISPOSABLE INCOME (Billions of dollars) O $25.2 billion $26.8 billion $24.4 billion 45 0.8, Suppose now that country's national income increases to $34 billion. Assuming the amount paid in taxes is fixed at $10 billion and that MPC = what will be the new household consumption? $21.2 billion 50 Consumption Function (?)
2. The consumption function Consider a country with the national income of $12 billion, the amount of taxes paid by households of $3 billion, and household consumption of $7 billion. Suppose that the marginal propensity to consume (MPC) is 0.75. On the following graph, use the blue line (circle symbol) to plot the economy's consumption function. Hint: You should plot the first point where household consumption equals $7 billion. Then, plot the second point when real disposable income rises by $4 billion. REAL CONSUMPTION (Billions of dollars) 20 18 16 + 14 12 10 0 0 2 4 6 8 10 12 14 16 18 20 REAL DISPOSABLE INCOME (Billions of dollars) -0 O $7.75 billion O $9.75 billion O $7.5 billion O $10.75 billion Consumption Function (?) Suppose now that country's national income increases to $13 billion. Assuming the amount paid in taxes is fixed at $3 billion and MPC= 0.75, what will be the new household consumption?
Suppose now that country's national income increases to $35 billion. Assuming the amount paid in taxes is fixed at $12 billion and MPC = 0.7, what will be the new household consumption? $22.3 billion $21.6 billion $23.7 billion $19.5 billion
Consider the hypothetical country of Kejimkujik. Suppose that national income in Kejimkujik is $300 billion, households pay $100 billion in taxes, household consumption is equal to $160 billion, and the marginal propensity to consume (MPC) is 0.6. On the following graph, use the blue line (circle symbol) to plot the economy's consumption function. Consumption Function050100150200250300350400450500500450400350300250200150100500CONSUMPTION (Billions of dollars)DISPOSABLE INCOME (Billions of dollars) Suppose now that Kejimkujik’s national income increases to $330 billion. Assuming the amount paid in taxes is fixed at $100 billion and that MPC = 0.6, what is the new amount of household consumption? $148 billion $219.4 billion $220.6 billion $178 billion
Consider the following economy. What is the mpc in this economy? Planned Government Net Exports Aggregate Change in Real GDP (Y) Consumption (C) Investment (I') Purchases (G) (NX) Expenditures (AE) Inventories 10000 8200 800 11000 9000 600 12000 9800 13000 14000 15000 800 Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a 0.50 b 0.75 C 0.80 d 0.90
1. Suppose the households in a hypothetical economy has the following consumption function C= a + cYd. Where is the disposable income. The government in this economy imposes a tax rate of to households’ income (ex. A means that 10% of households’ income goes to tax payments). a. What is the equation that describes the disposable income of households? b. What is the Planned Expenditure Equation? Assume that government expenditure is exogenous and Investment function is given by the equation I = I-br Where is the interest rate. c. Derive the equilibrium output in the goods market and show that the multiplier in this model is 1/1c(1-t). d. How does and the tax rate affects this multiplier (e.g., what happens to multiplier if c increases cet.par. , or if tax rate increases, cet.par)?
Assume that a nation's marginal propensity to consume (MPC) is 0.75. A highiy productive, cost-cutting technology is developed for the production of commercial airplanes. The total industry expenditure in this nation is $100 million for the immediate acquisition and adoption of this technology. (a) For this nation, identify and explain how much this spending on new technology will change each of the following in the first round: i. Income (GDP) L. Saving i. Consumption (b) Assuming a closed economy and no leakages, identify and explain how much this spending on new technology will change each of the following at the end of the final round: i. Income (GDP) ii. Saving li. Consumption
7. The consumption function Consider a country with the national income of $11 billion, the amount of taxes paid by households of $3 bilion, and household consumption of $7 billion. Suppose that the marginal propensity to consume (MPC) is 0.75. On the following graph, use the blue line (circle symbol) to plot the economy's consumption function. Note: Select and drag the line segment from the palette to the graph. Then select a point on the line segment and drag it to its desired position. CONSUMPTION (Bons of dollars) u) 18 10 12 10 4 6 16. 12 14 14 DISPOSABLE INCOME (ons of dollars) 18 M Consumption Function
Step 2: The Effect of Saving on Total Expenditures The following table shows data for the economy before the decrease in saving. Suppose that the decrease in saving causes consumption to rise from $280 million to $320 million. Assume Say's law holds in this economy. Fill in the data for the economy after the decrease in saving. Before Saving Decrease $280 million $200 million $250 million $500 million $300 million Consumption (C) Investment (I) Government Purchases (G) Exports (EX) Imports (IM) As a result of the decrease in saving, total expenditures will After Saving Decrease $320 million million million $500 million $300 million
5 The graph shows aggregate expenditures for the fictitious country of Carpistan. Suppose the government of Carpistan increases government expenditures in order to boost the economy. Move the appropriate curve or curves to show the effect of this increase. Next, place point A to show where actual aggregate expenditures equals planned aggregate expenditures. Aggregate Expenditures (AE) 10 9 5 0 1 3 4 D Real GDP (Y) 16 7 11 YAB AR 2.0 10
4. In the economy of St. Maynard Island, autonomous consumption expenditure is $185 million, and the marginal propensity to consume is 0.75. Investment is $150 million, government expenditure is $100 million, and net taxes are $80 million. Investment, government expenditure, and taxes are constant - they do not vary with income. The island does not trade with the rest of the world. a) What is the consumption function? b) What is the aggregate expenditure function? c) What is the island's autonomous aggregate expenditure? d) What is the size of the multiplier in St. Maynard Island's economy? e) What is the island's aggregate planned expenditure and what is happening to inventories when real GDP is $1,100 million? f) What is the economy's equilibrium aggregate expenditure?
2. From what was learned in class, explain what the values of the slope and vertical intercept of the aggregate consumption function mean from an economic perspective. Income-expenditure equilibrium Using the data in the following table to complete the following questions. GDP YD Planned (billions of dollars) $0 $0 $200 $100 400 400 500 100 800 800 800 100 1,200 1,200 1,100 100 1,600 1,600 1,400 100 2,000 2,000 1,700 100 2,500 2,500 2,000 100 3,000 3.000 2,300 100 1. Complete the columns for AEPlanned and unplanned in the table. 2. What is the value of the MPC? 3. What is the aggregate consumption function? AE Planned Unplanned 4. What is the equation for the planned aggregate expenditure function? 4. 5. What is the value of income-expenditure equilibrium GDP, (Y*)? 6. Explain in economic terms what happens when not in the income-expenditure equilibrium? Both when GDP > AE planned and GDP < AE planned. For each situation what needs to happen to move the economy toward equilibrium?.