Consider an initial IS-LM equilibrium with normally-sloped curves. An increase in government spending takes us to a new equilibrium with ________ income and ________ interest rate. Select one: a. an unchanged, a higher b. higher, a lower c. higher, a higher d. lower, an unchanged
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Q: Planned expenditure function question Do all parts to the question (show your work) Assume in…
A: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the question and…
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- 1. Interpret what it means if MPC equals 0.95? 2. If your MPC is 0.9 and your income falls by $200, what will be your change in spending? 3. For each of the following determine whether there is movement along a consumption schedule (function), or a shift of the schedule. If there is a shift then indicate the direction of the shift and interpret that shift. a. Consumer’s expectations became more optimistic. b. An increase in the interest rate. c. There is a current low level of consumer durables on hand. d. Consumer incomes rise.Derive the consumption function and use this relation in the aggregate demand function to derivean equation for the equilibrium in the goods market . Why the AD line is upward sloping?Suppose the government spending falls by 100 and in this case marginal propensity to consumeis 0.8. what is the value of change in output. Draw a diagram to show the shift in AD line due tothis change in government spending and output.In each of the following cases, determine whether the IScurve shifts to the right or left, does not shift, or is indeterminate in the direction of shift.a. The real interest rate rises.b. The marginal propensity to consume declines.c. Financial frictions increase.d. Autonomous consumption decreases.e. Both taxes and government spending decrease by thesame amount.f. The sensitivity of net exports to changes in the realinterest rate decreases.g. The government provides tax incentives for researchand development programs for firms
- Interest rate 4% 3% + $50 500 530 0₂ D₁ Savings, investment, government borrowing (millions of dollars) Consider the graph of Nation A which is in recession and in order to increase the economy the government chooses to raise the spending and decides to borrow $ 50 million to construct famous economists statues. Decide which of the given statements is true? a) There will be an increase in investment spending beyond $530 million. b) There will be a decline in investment spending to $480 billion. c) There will be an increase in consumption of $30 million. d) There will be a net change in aggregate spending of 30 million.30. Given this model, what would be the change in equilibrium level of income were G to increase to 250? 31. Given this model, what would be the new equi8librium level of income were Investment spending to decline by 50?If the MPS rises, then the MPC will: a. Fall b. Rise c. Stay the same In what direction will each of the following occurrences shift the consumption and saving schedules, other things equal? a. A large decrease in real estate values, including private homes. b. A sharp, sustained increase in stock prices. c. A 5-year increase in the minimum age for collecting Social Security benefits. d. An economywide expectation that a recession is over and that a robust expansion will occur. e. A substantial increase in household borrowing to finance auto purchases. Irving owns a chain of movie theaters. He is considering whether he should build a new theather downtown. The expected rate of return is 15 percent per year. He can borrow money at a 12 percent interest rate to finance the project. Should Irving proceed with this project? Which of the following scenarios will shift the investment demand curve right? (Select one or more answers) a. Business taxes increase b. The expected return…
- Determine equilibrium levels of income and consumption for the following functions.a.C=20+0.75y,I=20,b.C=50+0.60y,I=30. WhereC&I are consumption and investment respectively in billions of nairaSuppose the current price level is 105, and the current level of RGDP is $17.2 trillion. Illustrate each of the following situations on a graph. a. The price level rises to 110, while other variables remain constant. b. Firms become pessimistic and reduce their investment. Assume that the price level remains constant.Ts assume that in the model of national economy household consumption is C = 300 + 0.9*DI, companies' gross vestment is Ig = 200, but government expenses are G = 250, while the sum of taxes collected by the government iS -150. Taking into account that disposable income DI =Y-T, calculate: a) Equilibrium level of income Y; b) Calculate the value of Marginal propensity to consume and value of Marginal propensity to save; c) Private consumption at macroeconomic equilibrium%3; d) Develop equation of saving and calculate amount of saving at the point of equilibrium level of income.
- Consider first the goods market model with constant investment that we saw in Chapter 3. Consumption is given by C = c0 + c1(Y - T) and I, G, and T are given. a. Solve for equilibrium output. What is the value of the multiplier for a change in autoomous spending? b.Now let investment depend on both sales and the interest rate: I = b0 + b1Y - b2i Solve for equilibrium output using the methods learned in Chapter 3. At a given interest rate, why is the effect of a change in autonomous spending bigger than what it was in part a? In other words, why the multiplier is now bigger?The following equations describe an economy. Y=C+I+G C=120+0.6(Y-T) I=100-10r, G=60 T=40 M/P=Y-20r. M=600 P=20 a. Derive the equations for IS and LM curves. b. Find the equilibrium level of income and the equilibrium interest rate. c. Suppose government expenditure increases by 50%. Find the equilibrium interest rate and income.Consider an economy described by the following equations:Y=C + I +GY=7,000G=4000T=2,000C=150+0.75(Y-T)I=1,000-50rb. Calculate the equilibrium interest rate. c. Now suppose the G rises by 1,000. Compute private saving, public saving, andnational saving.d. Calculate the new equilibrium interest rate.For these 3 questions please only show the graphical response.
