econ104hw - Part1::Questions18are worth3pointseach. each 1...

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Part 1: Multiple choice questions: Questions 1-8 are  worth 3 points each. Questions 9-12 are worth 4 points  each.   1.                               Consider the following modeli) C = 1500 + mpc (Y -  tY)ii) I = 800iii) G = 500iv) X - M = 500 - mpi (Y) where:t = the (flat) tax ratempc = the marginal  propensity to consumempi = the marginal propensity to import suppose mpc = .80, t = .25, mpi = .2 Given the information above, solve for the equilibrium  output: A) Y* = 3300 B) Y* = 5500 C) Y* = 1500 D) Y* = 1800 2.                               We know that the formula for the (government)  spending multiplier is 1/(1-mpc(1-t) + mpi). The value  of the government spending multiplier in this problem  is:  Round to 2 decimal places. 3.                               When we discussed the multiplier we discussed the  impact effect. For example, suppose that G increases by 100  to 600 and we assume, as we often do, that firms  match the increase in demand by increasing Y by 100.  In round two, this is an  increase in income of 100 to  consumers . We will  trace out exactly where this 100  increase in income goes in the second round . Recall,  there are three leakages to address (via taxes, imports  and savings).Given that t=.25, we know that .25 of  every dollar increase in gross income is a leakage due  to taxes. Since the increase in income is $100, we know
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the leakage due to taxes is: 4.                               Given that mpi=.2, we know that .2 of every dollar  increase in gross income is a leakage due to imports.  Since the increase in income is $100, we know the  leakage due to imports is: 5.                               Given that the MPC=.8, we know that .2 of every dollar increase in gross income is saved. Since the increase in  income is $100, we know the leakage due to savings is: A) $100 B) $80 C) $20 D) 20 cents
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  • Fall '10
  • staff
  • Fed, federal funds rate, taylor rule

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