homework5fall2007answers

homework5fall2007answers - Economics 102 Fall 2007 Answers...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Economics 102 Fall 2007 Answers to Homework #5 1. Complete the following table, and answer the questions that follow. Taxes are proportional to income, so T = tY. Assume that there are NO TRANSFERS. Hint: You should consider using the slope formula to calculate MPC. Y T Y-T C S 60 15 45 56 -11 100 25 75 80 -5 175 43.75 131.25 125 6.25 400 100 300 260 40 a) Determine the progressive tax rate t. 15 = t(60) t = .25 b) Determine the consumption and saving functions with respect to disposable income, and with respect to aggregate income. 2 . 8 . 1 1 8 . 45 75 56 80 ) ( ) ( ) ( 2 1 2 1 = - = - = = - - = - - - - = - = MPC MPS T Y T Y C C T Y C MPC C = 20 + .8(Y-T) C = 20 + .6Y S = -20 + .2(Y-T) S = -20 + .15Y c) Given the consumption function you determined in part (b), the tax rate you found in part (a), and the following information about the economy, determine the equilibrium output: I = 130 G = 100 + .16T X = 250 M = 200 Y = [20 + .8(Y-T)] + 130 + [100 + .16T] + [250-200] Y = 300 + .8(.75Y) + .16(.25Y) Y = 300 + .64Y .36Y = 300 Y = 833.33 d) Given equilibrium output, determine the equilibrium levels of consumption, savings, taxes, and government spending.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
C = 20 + .6(833.33) C = 20 + 499.99 C = 519.99 S = -20 + .15(833.33) S = -20 + 124.99 S = 104.99 T = .25*(833.33) T = 208.33 G = 100 + .16(208.33) G = 133.33 Notice, adding the values for C + S + T, you get 833.33 (approximately because of rounding errors). This is the value determined for Y in part C. This is consistent with the identity from class, Y = C + S + (T-TR). e) Is the government running a deficit or a surplus? Are there capital inflows or outflows? The government is running a surplus. T-G = 75 There are capital outflows M – X = -50. f) In terms of variables, determine the GDP multiplier. Hint: you should model the equations as follows: C = a + b(Y-T) I = I G = g + dT X = X M = M T = tY Y = [a + b(Y-T)] + I + [g + dT] + [X-M] Y = [a + b(Y-tY)] + I + [g + dtY] + X – M Y = a + bY –btY + I + g + dtY + X – M
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 08/08/2008 for the course ECON 102 taught by Professor Drozd during the Spring '08 term at Wisconsin.

Page1 / 5

homework5fall2007answers - Economics 102 Fall 2007 Answers...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online