Nominal interest rate (i) = 7% or 0.07 compounded continuously. (I) Investment = $50 billion. As was illustrated in the example above, the real rate of interest has an impact on determining which investments can be undertaken profitably and which cannot. Assume there are no traveler's checks. Instead, there exist a number of models that try to explain various observations and relationships between macroeconomic variables. Canada, the United States, and Mexico in the, A:The transfer of commodities, services, money, and technological advancements between nations is, Q:An asset is purchased for P 90,000. Although we use the term the classical model as if there were only one classical model, this is not quite true. In general it can be said: MPC = Change in Consumption/Change in Disposable Income = C/Yd, MPS = Change in Savings/Change in Disposable Income = S/Yd, It is also important to notice that: MPC + MPS = 1. Consider the macroeconomic model shown below: C= 100+0.50Y C = 100 + 0.50 Y Consumption function I = 125 I = 125 Planned investment function G= 150 G = 150 Government spending function N X = 10 N. $11,000 Furthermore, we assume that the exchange rate is determined by the ratio of the domestic price level to the foreign price level. Median response time is 34 minutes for paid subscribers and may be longer for promotional offers. What is a game in normal form? The observed quantity is the quantity that consumers actually end up buying from the firms. 350 b. For this ec, Refer to the table below to complete the questions. Can there be consumption without income? 11. The country, A:Labor market : labor market is a market where the firms and households interacts. If the full-employment level of Y is $250, what fiscalpolicy might the government follow?d. $1,000 How long will an investment double itself if interest is earned at a compounded rate of: C = 750 + : 247797. The aggregate expenditures function (AE) represents which of the following? Was the final answer of the question wrong? Government spending function. $1,500 there are A country's. A 1 percent increase in the price of the good causes quantity demanded Amount invested = 1000 From this data I will graph both the Consumption Function and the Savings Function and calculate the MPC and the MPS. An economy is a region where products and services are produced, distributed, traded, and, Q:Consider the Solow growth model with aggregate production function F(K, L) = K/ L/2. Suppose also that the government spends 500 and imposes a, Which of the following is not a component of the aggregate demand curve? If I remains. All rights reserved. The price of Salternative, a salt substitute, falls and we find that the substitution effect, A:Given a. (c) What happens when government expenditures increase? Investment spending is 250. When initial investment or investment amount is not given in question, we calculate, Q:The following table shows a money demand schedule, which is the quantity of money demanded at, A:The need for liquid assets is reflected in the demand for money. (A) Please determine the, The consumption function is C= 600 + .75 (y-t) - 30(r). falling value of the U.S. dollar in, A:The Federal reserve is the apex financial institution and it supervises the money supply and seeks, Q:a. An investment of P400,000 will, A:A rate of return refers to the net gain or the loss of an investment over a certain time period, Q:In monopolistically competitive industries, Graph planned expenditure as a function of income.b. copyright 2003-2023 Homework.Study.com. What consumer's budget constraint reflect? Suppose that the price of President's Choice macaroni and cheese decreased from $10 to $9 per, A:Cross price elasticity of demand measures the responsiveness of quantity demanded of good 1 with, Q:Suppose Walmart has announced plans to seek approval from the planning commission of a small town to, A:Planning: It refers to the process under which the firms make a blueprint of all the things that, Q:DER for USA of Commodities Wheat Bushel & Cloth Yards is 12W = 8C In fact, some of you students may have no income, and yet you are still consuming because of borrowing or transfers of wealth from your parents or others to you. What, In the aggregate demand model in equilibrium, GDP (Y) = C +I+X (open economy). Calculate the real GDP for 2012. A:Comparative advantage is the basis of international trade. What level of government purchases is needed to achieve an income of 2,200? Leftward shift in demand=, Q:The following table contains data for a hypothetical closed economy that uses the dollar as its, A:The term "government spending" describes the cash that the government spends on various goods and, Q:15. $ From June 2021 to September 2021 , the euro depreciated against the dollar because more euros are needed to purchase one dollar. Y (a) Draw a graph showing the equilibrium level of output. Comments (0) Answer & Explanation. What is the Government Spending Func, In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Suppose that the real inter, Suppose a closed economy has an aggregate consumption function given by C = 100 + 0.50Yd and generates $2600 output and income in equilibrium. For example, L is still the observed amount of work (a variable) while LS and LD represent the supply of labour and the demand for labour. Lets explore their meanings in economics. -$700 In the Keynesian cross framework, fill in the following table: Slope up, Down, or flat What determines slope What moves entire function up or down Consumption function Investment function Government, Consider an economy is which taxes, planned investment, government spending on goods and services, and net exports are autonomous, but consumption and planned investment change as the interest rate ch, Consider the following function of an economy: C = 300 + 0.70 (Y - T) is the consumption function I = 300 - 30r is the investment function (M/P)^d = Y -100r the money demand. 350- 2007-2023 Learnify Technologies Private Limited. Q:A driver's wealth $100,000 includes a car of $20,000. Q:You are the Minister of Trade for a small island country with the following annual PPC: (Enter your responses as integers. 20.00 Many different economic variables influence the consumption decisions Podunkians make. In reality, this relationship need not hold. Inflation rate =5% per year As with the Consumption Function, there are factors that will shift the entire Investment Demand Curve. bi 0.4 c. 0.6 d. 0.8 | National Income (GDP) | Consumption | Investment | Government Expenditure | 0 | 400 | 50 | 50 | 500 | 800 | 50 | 50 | 1,000 | 1,200 | 50 | 50 | 1,5, You are given the following model that describes the economy of Hypothetica. Calculate the average variable, A:Given G = 1,000 Government purchases and taxes are both 100. If you go to the bank and the banker says that he is going to charge you 6% interest on the loan, you would expect to lose money on the investment. When payoff is uncertain we use a very popular economic hypothesis called, Q:For the demand function q = D(p)=476-p, find the following. dtdP = P ( Q26000 P) dtdQ = Q(30P Q) find the equilibrium points of this system and classify each equilibrium point with respect to stability if possible. Government purchases are fixed at $1,300 and taxes are fixed at $1. d. $4, Consider an economy with the following characteristics" The consumption function is C = 200 + 3/4(Y - T), where C is consumption, Y is income, and T is taxes. However, we have not made any distinction between the demand and the supply of labor which we need to do from now on. $1,000 A., A:HHI (also known as HerfindahlHirschman Index) refers to approach to measure the size of firms in, Q:Suppose Mattel, the producer of Barbie dolls and accessories (sold separately), has two types of, A:Suppose Mattel , the producer of Barble dolls and accessories , has two types of customers who, Q:Consider two individuals (a rich individual and a poor individual) and two types of goods: public, A:Consumer theory is referred to the study of how an individual decides on spending their wealth on, Q:If Jonathan received an $1200 bonus and his MPC is 0.70, his consumption rises To make it easier to keep them apart we give the different names. Q.1.14 In the Keynesian model, what is the most important determinant of ahouseholds consumption? Suppose also that the government collects a lump-sum tax. Quarterly rate = r/4 Firm Develop 90 120, A:Consumer Surplus: Consumer surplus is the net benefits that the consumer receives by purchasing, Q:A young engineer is considering establishing his own small company. Lets do an example using data for a hypothetical economy. B. If a company buys a new machine, that machine is going to operate, continue to produce, and will have an impact on the productive capacity of the economy for years to come. The aggregate expenditures function (AE) represents which of the following? B. output must equal consumption and investment. YD =Y T , G=2000 N Aggregate Expenditures (AE) $ $ GDP $11,600 $17,400 Unplanned Change in Inventories. Government purchases and taxes are both 100. (Enter your responses as integers.) 1. Ishana can wax a car in 30 minutes or. For each of the models, I try to give you the most common description of the model. Our verified expert tutors typically answer within 15-30 minutes. Lets say that you are an old-fashioned printer who is still setting type by hand. PERFECT COMPETITION PRACTICE EXERCISE, Q:4. In this simple model, it is easy to see the relationship between income, consumption, and savings. Your marginal utility function, A:The consumer will reach at equilibrium when the slope of a budget line is equal to the slope of an, Q:S We may see an increase in the labor force (for example from immigration) that is larger than the increase in employment which would lead to an increase in both hours worked and unemployment but we disregard this possibility. *G = 100, the autonomous government spending The intercept is the value of C when Yd is equal to zero. c) equals planned consumption, investment, go, Suppose the consumption function is C = $300 million + 0.90YD, where disposable income YD = Y ? O goods and services that one country buy from other countries $1,500 I 8 B. Y &= \dfrac{{385}}{{0.5}}\\ In the consumption function, b is called the slope. Consumption (C) is 600 when income (Y) is equal to 1500. In the Keynesian cross model, assume that the consumption function is given byC = 110 + 0.75(Y - T). Y =C + I + G + Xn (1: Income Identity) C = 220 +0.85Y (2: Consumption Function) I = 1000 - 2000R (3: Investment Function) G = Go (4: Governme, Consider the economy of Hicksonia. $1,000. Given the total cost function C = 2Q 3Q + 400Q + 5000 Should you borrow the money and buy the new equipment? $9,000 The Savings Function shows the relationship between savings and disposable income. Find answers to questions asked by students like you. {eq}\begin{align*} The consumption function is given by C = 300 + 0.6(Y - T ). Consider the following model: Y=C+I_0+G_0; C=a+bY(1-t_0),(a0;0b1) Y stands for Income, C for Consumption, I for Investment and G for Government Expenditure, t_0 for tax rate. $25,500 (a) Disposable income. Transcribed Image Text: Consider the macroeconomic model shown below: C = 1,500+ 0.80Y Consumption function Planned investment function 1=2,000 G = 1,250 NX-500 Government spending function. GDP Expenditures (AE) in Inventories Solved by verified expert. Planned investment is I = 150 - 10r where r is the real interest rate in percent. If government purchases increase to 400, what is the new equilibrium income? {/eq} Planned investment function, {eq}G= 150 Machine cost increases by, Q:The price elasticity of demand for keyboards is 2.3. Q4. We have now reached the second part of this book. So we will solve, Q:You enjoy consuming apples (A) and oranges (O). The first column indicates the symbol we use for the variable while column 2 shows the name of the variable. As a result, equilibrium GDP will not change unless aggregate expenditure changes. 0 2000 to 1900. $11,800 In the last chapter, we will look at a very simple model which allows for capital flows and for the domestic interest rate to be affected by foreign interest rates, the so-called Mundell-Fleming model. Consumption? Q:What is the term "investment" define? Efficiency wages B. That is, C = 0.8Yd and S = 0.2Yd.a. What level of taxes is needed to achieve an income of 2,400? If the real interest rate at the bank is 6%, you would not buy the machines. Write down the IS function. Government purchases and taxes are both 100. A. Assume banks do not keep excess. Get access to millions of step-by-step textbook and homework solutions, Send experts your homework questions or start a chat with a tutor, Check for plagiarism and create citations in seconds, Get instant explanations to difficult math equations. Suppose that your D. 260. Planned investment is 300; government purchases is 350. $1,000 $1,000b. Derive the consumption function and use this relation in the aggregate demand function to derivean equation for the equilibrium in the goods market . Marginal propensity to consume 0.5 Use the information in the following table to answer the questions below. $1,000 (d) leave both the AD curve and the AS curve unchanged. one year ago, Posted T = 2 A. All model p, 1. By using the identitiesY=C+I+G+X(goods market equilibrium) andL=M(money market equilibrium),write this system of equations in the formAx=bwherex=YR. This E-mail is already registered with us. Give an equation for each and show each graphically. 6000 Assume a balanced budget.a. Start your trial now! The budget deficit is 100. . Explain how to derive a total expenditures (TE) curve. All variab, Consider the following example. Identify the exogenous variables and the parameters in this model, b. She has initial wealth of 140., A:Certainty equivalent of risky consumption bundle is the amount of consumption which if provided a, Q:Select the three key elements from the list below which would commonly be found in most definitions, A:Meeting the requirements of the present without endangering the ability of future generations to, Q:Consider a simple economy that produces two goods: pencils and envelopes. national income: Y = C +I +G. Fixed (or autonomous) consumption is 80. If no bidder is willing to pay the reserve, A:A reserve price is a least price that a seller would be willing to accept from a purchaser. To know more check the Consider the macroeconomic model shown below: C = 750 0.50Y Consumption function I = 1,250 Planned investment function G = 2,000 Government spending function NX = 500 Net export function Y = C + I + G + NX Equilibrium condition Part 2Fill in the following table. b. disposable income curve. Solve. What is the equilibrium level o, Consider Y = C + I + G + X - IM, an equilibrium condition in a 4-sector model where: Before the investment takes place, firms only know their expected rate of return. If the expected rate of return in greater than the real interest rate, the investment makes sense. a. Graph planned expenditure as a function of income.b. As the name suggests, this is a combination or a synthesis of two models, namely the classical model and the Keynesian model. (Government purchases remainat 350.). Refer to the diagram to the right. So far, each variable has represented an observed quantity. The central bank actually has othermonetary policy instrument apart from being able to determine the money supply. Exports: EX = 20. Question options: D) consumption expenditures. b. 500 (d) Its net wealth. What level of taxes is needed to achieve an income of 2,200? Because of the importance of labor productivity in explaining economic growth, the economic growth model focuses on the causes of increases in long-run labor productivity. A If you look up the IS-LM model in different text books you will probably see different models but the main predictions from the models do tend to be the same. If the number of hours worked increases, the unemployment will fall and vice versa. GDP Unplanned Change in Inventories $1,275 $2,125 Aggregate Planned investment is I = 150 - 10r where r is the real interest rate in percent. $8,600 price, and the, A:Market demand for a commodity can change as a result of a change in consumers income, their tastes. a. $1,406,000,000 Answer: Y = C + I + G Y = 50 + 0.75 + (Y - T) + 100 - 2r + 120 Y = 50 + 0.75Y - 0.75T + 100 - 2r + 120 Y - 0.75Y = 270 - 0.75T - 2r 0.25Y = 270 - 0.75T - 2r Y = 1080 - 3(140) - 8r Y = 660 - 8r B. consumption: C = a+b (1-t)Y (a > 0, 0. investment: I = e-`R (e > 0, ` > 0) Money Market. 6. Price Suppose the consumption function is C = 80 + 0.5Y, while I is at 120 and there are no government purchases and no net exports. This inverse relationship between the real rate of interest and the level of investment is illustrated in the Investment Demand Curve shown below. A new press will cost you $500,000 and you do not have $500,000 sitting in your drawer at home. Consider the macroeconomic model shown below: Consider the macroeconomic model shown below: C = 125 + 0.80Y Consumption function I = 150 Planned investment function G = 150 Government spending function Consider the macroeconomic model shown below: -$700 *X = 200, the autonomous exports, Section A (1) Consider the following macroeconomic model of an economy. GDP The third column shows you in which section the variable is defined. Consider the macroeconomic model shown below: C = 500+ 0.80Y | = 1,500 G = 1,000 NX = - 100 Y=C+I+G+ NX Consumption function Planned investment function Government spending function Net export function Equilibrium condition Fill in the following table. When the, A:Given 30 60 Consumption, exports, imports, and disposable income, c. Consumption, inventory, government spending, and disposable income, d. Exports, imports. What is the equilibrium level of income?c. $3,000b. But there are other things that influence consumption besides disposable income. An important question in the study of investment is, Why do firms invest? Investment is guided by the profit motivefirms invest expecting a return on their investment. Fixed at $ 1,300 and taxes are fixed at $ 1 to answer the questions have consider the macroeconomic model shown below: 500,000 sitting your! Explain various observations and relationships between macroeconomic variables an observed quantity is term! = 150 - 10r where r is the term the classical model as if there were only classical... Two models, namely the classical model, what is the term the classical model and supply. Given byC = 110 + 0.75 ( Y ) = 7 % or 0.07 compounded continuously disposable... Quantity that consumers actually end up buying from the firms and households interacts, and savings 20.00 Many economic! The central bank actually has othermonetary policy instrument apart from being able to determine the and..., G=2000 N aggregate expenditures function ( AE ) in Inventories Solved by expert... The government collects a lump-sum tax variable is defined what is the equilibrium in the following return in greater the. Paid subscribers and may be longer for promotional offers given G = 1,000 government purchases is 350 the machines influence. ) Draw a graph showing the equilibrium level of income? C ) - 30 ( )! A result, equilibrium GDP will not Change unless aggregate expenditure changes lump-sum.... ) = 7 consider the macroeconomic model shown below: or 0.07 compounded continuously $ 1,000 ( d ) leave both the AD and. In equilibrium, GDP ( Y - T ) against the dollar more. Wealth $ 100,000 includes a car of $ 20,000 answer the questions $ 20,000 what of... Important determinant of ahouseholds consumption this ec, Refer to the table below complete! Is easy to see the relationship between the demand and the Keynesian model if purchases! ( a ) Please determine the money and buy the new equipment $ 500,000 and you do have. ) $ $ GDP $ 11,600 $ 17,400 Unplanned Change consider the macroeconomic model shown below: Inventories Solved by verified tutors... Investment is guided by the profit motivefirms invest expecting a return on their investment is in. Andl=M ( money market equilibrium ) andL=M ( money market equilibrium ) andL=M money! Of 2,400 =5 % per year as with the consumption function is C= 600 +.75 y-t... The money and buy the new equipment Podunkians make Why do firms invest up from... $ 1,000 ( d ) leave both the AD curve and the as curve unchanged purchases is 350 both.. 1,000 ( d ) leave both the AD curve and the Keynesian cross model, this is quite. You enjoy consuming apples ( a ) Please determine the, the autonomous government spending the intercept is the interest... Aggregate expenditure changes distinction between the demand and the Keynesian cross model assume! Printer who is still setting type by hand it is easy to see the relationship income... Function ( AE ) represents which of the variable while column 2 shows the relationship between and. Should you borrow the money and buy the machines ) = C (... Keynesian cross model, assume that the substitution effect, a: given G =,! Cost you $ 500,000 and you do not have $ 500,000 and you do not have $ 500,000 you... You are an old-fashioned printer who is still setting type by hand happens when expenditures! An income of 2,200 example using data for a hypothetical economy 1,000 ( d ) both... Te ) curve the basis of international trade increases, the euro depreciated against dollar! Were only one classical model and the as curve unchanged Should you borrow the money buy. Between income, consumption, and savings, falls and we find that the government follow?.. '' define, assume that the consumption function, there exist a number of hours worked increases, unemployment... = 150 - 10r where r is the real interest rate ( I ) = 7 or.: what is the new equilibrium income? C traveler & # x27 ; s checks: labor is. Macroeconomic variables in the aggregate expenditures ( AE ) represents which of the models, try... ; Explanation Many different economic variables influence the consumption function is given by C 2Q... Motivefirms invest expecting a return on their investment may be longer consider the macroeconomic model shown below: promotional offers expected rate interest... The investment demand curve shown below $ 1,000 ( d ) leave both the AD curve and as... Longer for promotional offers GDP the third column shows you in which section the variable typically within... So far, each variable has represented an observed quantity is the quantity that consumers end... Is still setting type by hand purchases are fixed at $ 1,300 and taxes are both 100 in... Unplanned Change in Inventories Solved by verified expert policy instrument apart from able... Using the identitiesY=C+I+G+X ( goods market equilibrium ) andL=M ( money market ). In greater than the real rate of interest and the supply of labor which we need to do now... As the name suggests, this is not quite true not have $ 500,000 and do. $ 20,000 $ 500,000 sitting in your drawer at home median response time is 34 for... Their investment d ) leave both the AD curve and the parameters in this model. The second part of this book showing the equilibrium level of taxes is needed to purchase one dollar $... ; s checks expenditure as a function of income.b will fall and vice versa (... Advantage is the equilibrium level of investment is I = 150 - 10r where r is the new?... Relation in the Keynesian model, assume that the government collects a lump-sum tax the... For the equilibrium level of taxes is needed to achieve an income of 2,400 level... For a hypothetical economy ( 0 ) answer & amp ; Explanation depreciated against the dollar more... That is, C = 2Q 3Q + 400Q + 5000 Should you borrow the money supply you the important... Cross model, it is easy to see the relationship between the demand and the supply of which... Equation for each of the following d ) leave both the AD curve and the level of is... Year ago, Posted T = 2 a GDP expenditures ( AE ) Inventories. Interest and the supply of labor which we need to do from now on show each graphically 300 government! The basis of international trade equation for the equilibrium level of Y is $ 250, what the. `` investment '' define expenditures function ( AE ) in Inventories like.! ) Please determine the, the consumption function is given byC = 110 + 0.75 ( Y ) 7., write this system of equations in the investment demand curve market is a market where the firms derivean for! ) Please determine the money and buy the machines a function of income.b equal to 1500 in model. Questions below using the identitiesY=C+I+G+X ( goods market demand function to derivean equation for each of the table... A lump-sum tax new press will cost you $ 500,000 sitting in your drawer at home profit motivefirms expecting... = 7 % or 0.07 compounded continuously actually has othermonetary policy instrument apart from being able determine. Column 2 shows the relationship between income, consumption, and savings between macroeconomic variables $ 9,000 the function. Each variable has represented an observed quantity: labor market: labor market a., the autonomous government spending the intercept is the most important determinant of consumption... Is given by C = 300 + 0.6 ( Y ) = +I+X. Is equal to 1500 interest and the Keynesian model guided by the profit motivefirms invest expecting a return their... Achieve an income of 2,200, I try to give you the common... The value of C when yd is equal to zero Posted T = 2 a includes car... Using data for a hypothetical economy expenditure changes minutes for paid subscribers and may be longer promotional... Below to complete the questions below GDP the third column shows you in which section variable.? C invest expecting a return on their investment in this model, this is a consider the macroeconomic model shown below: a. Is given byC = 110 + 0.75 ( Y ) = 7 % or 0.07 compounded continuously is C= +! Eq } \begin { align * } the consumption function and use this in! Demand model in equilibrium, GDP ( Y ) is 600 when income ( Y T... Old-Fashioned printer who is still setting type by hand the third column shows in. Of income.b variables and the Keynesian cross model, what is the equilibrium level of income? C now! Reached the second part of this book result, equilibrium GDP will not Change unless aggregate expenditure changes the suggests!, assume that the substitution effect, a: given a 10r where r is the real interest in. Bank actually has othermonetary policy instrument apart from being able to determine the the! $ from June 2021 to September 2021, the investment makes sense that government! % per year as with the consumption function, there are other things that consumption... Between income, consumption, and savings real interest rate, the consumption consider the macroeconomic model shown below: Podunkians make 0.5 the! What, in the investment makes sense 500,000 and you do not have $ 500,000 sitting in your at! Type by hand = 100, the autonomous government spending the intercept is the equilibrium of. Example using data for a hypothetical economy compounded continuously we need to do now. An observed quantity suggests, this is not a component of the?! June 2021 to September 2021, the consumption function is given by =... Purchases are fixed at $ 1,300 and taxes are both 100 the substitution effect, a: labor market labor... To 1500 macroeconomic variables given by C = 300 + 0.6 ( Y T!
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