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Econ 302 HW 5 - Rebecca Chapman Economics 302 Discussion...

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Rebecca Chapman Economics 302 Discussion 303 Spring 2008 Homework #5 1. Keynesian Cross , C=100+ (2/3) (Y-T) a. If Y is 1,100 what is planned expenditure? Y=E=C+I+G C=100+(2/3) (1100-200)=700 G=200 I=300 Y=E=700+200+300=1,200 Inventory decreased by 100 and Production needs to increase b. What is equilibrium Y? Y=E (Y) Y=100+ (2/3)(Y-200)+300+200 Y=100+(2/3)Y- 133 1/3+ 500 (1/3Y)= 466 2/3 Y=1,400 c. What are equilibrium levels of consumption, private saving, public saving, and national saving, based on equilibrium level of output you just found? Consumption= C=100+(2/3)(1400-200)=900 Private Savings=Sp=Y-C-T Sp=1400-900-200=300 Public Savings=Sg=T-G Sg=200-200=0 National Savings=Sp+Sg NS=300 d. Compared to (b), what is the new equilibrium income when investment is reduced by 50? What is the Keynesian multiplier for investment spending? Y=E=C+I+G Y=100+(2/3)(Y-200)+250+200 Y=100+(2/3Y)-133 1/3 +450 (1/3Y)=416 2/3 Y=1,250, lowered by 150 Keynesian multiplier= 1/(1-b)=1/1-MPC=1/1-(2/3) 3
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e. Compared to the answer found in (b), what is the new equilibrium income if taxes are increased by 75? What is the Keynesian multiplier for taxes?
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