Unformatted text preview: Question 8 [5 points] Your solution to the question was : For all the questions below select the appropriate answer: :1 Suppose Ihe MPG and the slope of the AE function are 0.8. giving a mulliplier of5_D_ Then a newly formed govemrnent i1troduces a net is: on national income. NT = 021'. As a result
the slope ofthe AE function increases to 1.0. Ihe rnultiplier and equilibrium national income both increase. 0' the slope oflhe AE function deuease to 0.641 Ihe muliplerdea'eaees to 2.78 and equllbrim nalional income decreases.
the slope ofthe AE function is unchanged, the multiplier remains 5.0 and equilbnum national income is not attached.
the slope ofthe AE function demases to I164, the mult'plier demases to 1.56 and equiibnum national rooms decreases. b) In an open economy with imporls described by the import function: llu'l = 0.25Y and exports equal to X = 25!):
exports would be greaterthan imports at all levels of GDP.
it real GDP were 1600 net exports would be zero.
the net exportfunction would be H): = 250 + 0251’.
0' in a daglarn the not export liJnclion would have a vertical htercepl d250 and a slope EMMA?) of- 0.25. :1 The government's actual budget surplus ordeﬁtit is determined by:
the net is: rate set by the gouemrnent
0' the net lax late. the level cfgmremment expendbne and the egullnrlum level of nallonal income.
the level oigmemmenl spending set by me government. the equilibrium level of national income determined by autonomous expenditures and Ihe multiplier. d) An economy with household. business, govemment and inlemalionel trade sectors is descriJed by the follow'mg equalions: Consumption: G = 1'5 1- 0.850! - T}
lnvesbnent: l = 125 Government expenditure: G = 1'5
l-lettames: NT = I12Y Exports: X = 25 Imports: IM = [HEY The multiplier. the equilibrium level of real GDP and the governments budget balance in this economywould be:
6.6T. 200D and a surplus of 325 [BB = 325}. 0' 2.0. 600 and a strplus ot-lﬁ [BB - 45].
3.03. Mend a deﬁcitof 182 [BB =.1a2}_
1.5. 32"5 and a balanced budget [BB = D}. e] The multiplier associated with a balanced change in the government‘s budget:
is equal to zero since [he change in government expenditure is oilset by and equal change in tax revenue.
(mummuﬂmmemmmmmkbeceuseMgovmmwmeMIWMMmWe. Is punitive because households mange their wnsurnplion expenditure by less than Ihe change In thelrtax pay-menu.
is unknown. ...
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