A) The aggregate consumption function of Ekonland is known to be C= a + bYa and the tax structure is T = To + t·Y, where t is a fixed % income tax 1) Derive the expression for the equilibrium Y. Be sure to clearly show what the Expenditure Multiplier and the Tax Multiplier are. 2) Suppose we know that a = 25, b = 0.75, I= 50, Xn= 10, G = 70, To = 30, and t = 0. Calculate Ekonland's equilibrium GDP (i.e. Y).
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- 1. Consider an economy with the initial equilibrium income level of $1000 and the consumption function of C = $150 + 0.6 (Y - T). Find the following quantities:a. Government expenditures at the equilibrium level of income if T = $160 and I = $100.b. The change in income produced by increasing taxes 10%, provided that G and I remain unchanged. What is the tax multiplier?c. The change in income produced by increasing government expenditures 10%, provided that T and I remain unchanged. What is the government spending multiplier?d. Based on your answers to (b) and (c), does the balanced budget multiplier theorem hold?Consider the following economy: C = 300 + 0.8 (Y – T) I = $300 G = $200 and T = $250 What is the equilibrium level of national income? What is the change in national income, if only government spending increases by $10? What is the government spending multiplier? What is the change in national income, if only taxes increase by $10? What is the tax multiplier? Based on (b) and (c), does the balanced budget multiplier theorem hold? What is the change in national income, if both government spending and taxes increase by $10 each?16. Suppose that planned investment and planned government purchases do not depend on income:I = 15 and G = 17. Consumption, as you would expect, does depend on income via the consumption function C = 2 + 0.75Y – 0.75T. Net taxes are T = 12. Your friend thinks that the equilibrium will be where Y = 150 but he is wrong. What is the best description of this situation? a. the (Y, AE) point is above the 45 degree line, Y will adjust down b. the (Y, AE) point is above the 45 degree line, Y will adjust up c. the (Y, AE) point is below the 45 degree line, Y will adjust down d. the (Y, AE) point is below the 45 degree line, Y will adjust up 17. (continued) Help you friend by calculating the equilibrium income for the AE model in the previous question. Y = _____
- The economy is described by the following functions: Shown in Picture where ?t is the tax rate. Here, the amount of taxes collected depends positively on the gross income. Find the multiplier associated with government purchases. How does this multiplier compare with a model with lump-sum taxes? Why is it lower?C = 450 + 0.4YI = 350G = 150X = 70Z = 35 + 0.1YT = 0.15YYf = 1550Q.2.5 Calculate what the new equilibrium income should be if the government of thiscountry decides to cancel all taxes, implying the tax rate would now be 0%.Give typing answer with explanation and conclusion Suppose that the typical Canadian spends 80 percent of their income. There is an income tax rate is 15% per period. If the government wanted to see the effect of a tax cut of $50 billion, what would be the tax multiplier that they would have to use.
- Algebraically derive the government spending and tax multiplier for the case in which tax revenues depend on income level. Verbally explain what you do in each step of the derivation.C = 450 + 0.4Y I = 350G = 150X = 70Z = 35 + 0.1Y T = 0.15YYf = 1550Calculate the tax revenue to the government of this country when the economy (2) remains in equilibrium.Calculate what the new equilibrium income should be if the government of this (6) country decides to cancel all taxes, implying the tax rate would now be 0%.Before the government decreased the tax rate, how much of government spending was required to bring the economy to full employment?The following graph shows the aggregate demand curve. Shift the aggregate demand curve on the graph to show the impact of a tax hike. (?) 130 Aggregate Demand 120 110 100 90 Aggregate Demand 80 70 10 20 30 60 OUTPUT Suppose the governments of two different economies, economy J and economy K, implement a permanent tax cut of the same size. The marginal propensity to consume (MPC) in economy J is 0.85 and the MPC in economy K is 0.8. The economies are identical in all other respects. The tax cut will have a larger impact on aggregate demand in the economy with the PRICE LEVEL
- K Suppose that the government of Ansonia is experiencing a large budget surplus with fixed government expenditures of G = 250 and fixed taxes of T = 200. Both G and T are independent of income. Assume that consumers of Ansonia behave as described in the following consumption function. C = 300+ 0.90(Y-T) Suppose further that investment spending is fixed at 1 = 200. Calculate the equilibrium level of GDP in Ansonia. Solve for equilibrium levels of Y, C, and S. Y= (Round your response to two decimal places.)In February 2020, 15,300 people were employed, 2,700 were unemployed, and 7,000 people were not in the labor force. During March 2020, 160 people lost their jobs and didn't look for new ones, 140 people quit their jobs and retired, 800 unemployed people were hired, 100 people stopped looking for jobs and quit the labor force, and 700 people entered the labor force to look for work. a. Calculate for February 2020 i. The unemployment rate ii. The employment-to-population ratio b. Calculate for the end of March 2020 i. The number of people unemployed ii. The number of people employed iii. The unemployment rate1.) If the MPC is 0.8 and taxes increase by $100 billion, what is the effect on equilibrium RGDP? equilibrium RGDP will fall by $80 billion equilibrium RGDP will fall by $125 billion equilibrium RGDP will fall by $400 billion equilibrium RGDP will fall by $500 billion 2.) If equilibrium RGDP is $10000 billion and full employment GDP is $9000 billion, and the MPC = 0.75, what is the appropriate fiscal policy to return the economy to full employment GDP reduce taxes by $250 billion reduce taxes by $333.33 billion raise taxes by $250 billion raise taxes by $333.33 billion