MACROECONOMICS
14th Edition
ISBN: 9781337794985
Author: Baumol
Publisher: CENGAGE L
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Question
Chapter 9, Problem 5TY
To determine
To calculate: The equilibrium level of
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For this problem set, we're going to keep things simple. Be sure to watch the lecture before completing this. Please
use the following information and the following model from your book (and the lecture) to calculate Y (aggregate
incomes in an economy). BE SURE TO SHOW YOUR WORK (It's the reason I made this a problem set instead of a
quiz)
Y=C+1+G
C= Co + C;(Y-t)
Total spending in a small society:
Household spending on medicine: $4,000
Household spending on food: $1,000
• Household spending on recreation and entertainment: 20% of income
• Household spending on clothing: 15% of income
• Household spending on art: 40% of income
• Business investment on product lines: $10,000
• Business investment on equipment: $1,500
• Government spending on national defense: $3,600
• Government spending on roads: $2,000
Q1: There are two equations for macroeconomic equilibrium in an economy. State them.
Show (mathematically) that Savings equals Investment when expenditure equals income.
What type of economy would you have when exports equal imports? What happens to the
savings-investment relationship if exports are not equal to imports? [This can be greater
than or less than]. [Hint: See video lecture on Open Economy Macroeconomics]. Note: Ensure
to write out full meanings when you use abbreviations or short forms. This is key to getting
full marks.
For the next four questions, assume the economy can be described by the following set of equations:
C/Ỹ
= 0.4 + 0.8Y (Please note the variable with the coefficient 0.8 is Y tilde. The variable by which C is
divided is Y bar, potential output. It is difficult to read the notation.)
I/Y = 0.3 – 2(R - F)
G/Y = 0.3
C+I+G Y
Also assume that F 0.02 and Y 10
%3D
This is a complete IS model with a multiplier. You will be given the value of R set by monetary policy in
each question.
For all questions, enter the answer rounded to 1 decimal place.
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- The graph below is associated with a hypothetical country. Consider an increase in aggregate demand (AD). Specifically, aggregate demand shifts to the right from AD1AD1 to AD2AD2, causing the quantity of output demanded to rise at each price level. For instance, at a price level of 140, output is now $400 billion, where initially it was $300 billion. Fill in the missing values in the table by selecting the change in each scenario required to increase aggregate demand. Change required to increase AD Expected rate of return on investment. (decrease/increase) Incomes in other countries (decrease/increase) Consumer expectations about future profitability. (improve/worsen) Government spending (increase/decrease)arrow_forwardAn economy is described by the following: C=20+0.9Y I=120-200r. Md=250+0.2Y-400r. Ms/P=1250 Y=70 W=17.5 Lf=144 a) Find AS and AD. b) Find the equilibrium level of Y and P c) Graphically represent this economy d) Find the long-run Y of this economy. e) What is the level of government expenses G, the government needs to impose in order to lead the economy to the full employment? (Show the long-run graphically).arrow_forwardUse the orange line (square symbol) to plot a 45-degree line on this graph. Then use the blue points (circle symbols) to plot the aggregate expenditure line for this economy. Also, use the black point (plus symbol) to indicate the equilibrium output at this price level.arrow_forward
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