Create three diagrams for the aggregate expenditures (AE) model for a public closed economy by adding different taxes. For the Diagram #1 suppose: Autonomous Expenditures: $6000; MPC: 0.75 Taxes: $1500;Potential Output: $16500For the Diagram #2 suppose: Autonomous Expenditures: $ 6000; MPC: 0.75;Taxes: $3000;Potential Output: $16500For the Diagram #3 suppose: Autonomous Expenditures: $6000; MPC: 0.75; Taxes: $2500Potential Output: $16500Explain each diagram by determining economic gaps and/or equilibriums. How does an increase in taxes affect GDP? How does a decrease in taxes affect GDP?

Create three diagrams for the aggregate expenditures (AE) model for a public closed economy by adding different taxes. For the Diagram #1 suppose: Autonomous Expenditures: $6000; MPC: 0.75 Taxes: $1500;Potential Output: $16500For the Diagram #2 suppose: Autonomous Expenditures: $ 6000; MPC: 0.75;Taxes: $3000;Potential Output: $16500For the Diagram #3 suppose: Autonomous Expenditures: $6000; MPC: 0.75; Taxes: $2500Potential Output: $16500Explain each diagram by determining economic gaps and/or equilibriums. How does an increase in taxes affect GDP? How does a decrease in taxes affect GDP?

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section11.A: Graphical Treatment Of Taxes And Fiscal Policy

Problem 1DQ

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Explain graphically the determination of equilibrium GDP for a private economy through the aggregate expenditures model. Assume the MPC is .75. Now add government purchases (any amount you choose) to your graph, showing its impact on equilibrium GDP. Finally, add taxation (any amount of lump-sum tax that you choose) to your graph and show its effect on equilibrium GDP. Looking at your graph, determine whether equilibrium GDP has increased, decreased, or stayed the same given the sizes of the government purchases and taxes that you selected. Specify the level of GDP initially, the amount of Government Purchases, the amount of Taxes, and the ending amount of GDP if different from the original.
Assume that the economy can be modeled as follows: AE = C + I + G C = 300 + .6Yd I = 400 G = 100 T = 200 Y=1700 consumption=1200 7) Imagine the government would like to increase equilibrium GDP to 2,000, what would it have to set the level of government spending to? 8) What is the size of the spending multiplier? 9) What is the size of the tax multiplier?
V1 Consider the following information for a country: Consumption function: C = 85+0.8Yd Investment function: l = 85 Government spending: G=60 Net taxes: T = -40+0.25Y Disposable Income: Yd = Y - T Equilibrium: Y = C + l + G The level of equilibrium income, Y, = $_____(Enter response rounded two decimal places) The government collects net taxes of $_____ Remember the budget surplus is equal to taxes minus government spending, The governments budget surplus is $____
Thank you so much for helping! 1.2. In the table below is data for a hypothetical private-closed economy (The table normally goes here) Recall, private means that there is no government and closed means that there is no foreign trade. Use the information in the Table 1 to analyze aggregate expenditures (AE) model below (Figure 1. Equilibrium in a Private Closed Economy). Figure 1. Equilibrium in a Private Closed Economy (The line graph normally goes here) 1.3. Identify the mistake and explain why the graph of the aggregate expenditures line does not correctly illustrate the economy's equilibrium. 1.4. Chart the aggregate expenditures (AE) model using the data from Table 1: A Private Closed Economy. Hints: Remember, the 45degree line (also known as the Keynesian Cross) is a tool that shows how differences in aggregate expenditures and real GDP can affect business inventories which will affect future levels of real GDP. Aggregate expenditure and GDP are both function of…
C = 450 + 0.4YI = 350G = 150X = 70Z = 35 + 0.1YT = 0.15YYf = 1550(Hint: use the multiplier method)Q.2.4 Calculate the tax revenue to the government of this country when the economyremains in equilibrium.Q.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%.Q.2.6 Before the government decreased the tax rate, how much of governmentspending was required to bring the economy to full employment?
Use the following equations for exercises 16-18. C = $100 + .8Y I = $200 G = $250 X = $100 – .2Y 16. What is the equilibrium level of real GDP? 17. What is the new equilibrium level of real GDP if government spending increases by $150? 18. What is the new equilibrium level of real GDP if government spending and taxes both increase by $150? B the cnonding and tax revenue
4. The equilibrium levels of income Y, consumption C, disposable income Y4, and taxation T, for a three-sector macroeconomic model satisfy the structural equations: Y = C + 1, + Go C = a + bYa (0 0) a > 0) Express this system in the form AX Using Cramer's rule, find the equilibrium levels of consumption (C*), disposable income (Ya*) and taxation (T*) i. = d ii.
The Image attached titled Table 1 is data for a hypothetical private-closed economy. Use the information in the Table 1 to analyze aggregate expenditures (AE) model attached (Figure 1. Equilibrium in a Private Closed Economy). Question 1 Identify the mistake and explain why the graph of the aggregate expenditures line does not correctly illustrate the economy's equilibrium. Question 2 Chart the aggregate expenditures (AE) model in Excel using the data from Table 1: A Private Closed Economy. Remember, the 45degree line (also known as the Keynesian Cross) is a tool that shows how differences in aggregate expenditures and real GDP can affect business inventories which will affect future levels of real GDP. Aggregate expenditure and GDP are both function of consumption, investment, government spending, and net exports. So, the equations for the two are identical: Y = C + I + G + NX, and AE (aggregate expenditure) = C + I + G + NX For private closed economy the equation…
Refer to columns 1 and 6 in the table below. a. Incorporate government into the table (in the gray-shaded cells) by assuming that it plans to tax and spend $20 billion at each possible level of GDP. Also assume that the tax is a personal tax and that government spending does not induce à shift in the private aggregate expenditures schedule. Instructions: Enter your answers as a whole number. (2) Aggregate Expenditures, Private Closed Economy, Billions (6) Aggregate Expenditures, Private Open Economy, Billions (7) Government Expenditures, Expenditures Billions (8) Aggrega (1) Real Domestic Output (GDP = DI), Billions (3) Exports, (4) Imports, (5) Net Exports, Billions Billions Billions Economy wi Government, Bi $200 $240 $20 $30 $-10 $230 250 280 20 30 -10 270 300 320 20 30 -10 310 350 360 20 30 -10 350 400 400 20 30 -10 390 450 440 20 30 -10 430 500 480 20 30 -10 470 550 520 20 30 -10 510 What is the change in equilibrium GDP caused by the addition of government? 20 billion
6. Assume a closed economy with exogenous investment I and government spending G. The consumption function is as follows: C = a + bYa where Ya is households' disposable income. But instead of a head tax the government levies a proportional income tax, with the income tax rate given by t where 0 < t < 1. a) What is the new expression for disposable income? b) What is the new expression for the consumption function? c) What is the equilibrium level of output Y? d) What is the government spending multiplier in this case? (Hint: It's the derivative of income Y with respect to G.) e) Is this multiplier smaller or larger compared with the multiplier with a simple head tax T?
3. Suppose an economy is represented by the following equations. Consumption function C= 200 + 0.8Yd Planned investment I= 400 Government spending G= 600 Exports EX= 200 Imports IM = 0.1Yd Autonomous Taxes T= 500 Marginal Tax Rate t=0.2 Planned aggregate expenditure AE = C+I+G+ (EX - IM) By using the above information calculate the equilibrium level of income for this economy and explain why fiscal policy becomes less effective in an open economy
Question 1 Use the following equations to answer the questions below. The Peruvian economy can be characterized by these equations below. C = 400+ 0.6Yd Taxes = 600 Equilibrium Output = $4,000 a) Graph the consumption function in the income/output and aggregate expenditures space. Label your horizontal axis income/output (Y) and your vertical axis (AE). Label the vertical intercept and at least one other coordinate on the consumption function. What is the sum of investment and government purchases at equilibrium? Show your work. b) c) d) What is the equation for aggregate expenditure? Graph the aggregate expenditure function in the same graph from (a). Label the vertical intercept and equilibrium. At equilibrium, what is the level of saving in Peru? Show your work. On a separate graph, draw the saving function. Label your horizontal axis income/output (Y) and your vertical axis saving (S). Label the vertical intercept and horizontal intercept. e) The President of Peru hires you as an…