F07Monster Problem Ans

# F07Monster Problem Ans - 1.4.25 1.65 = 1.54 or just...

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TAKE HOME QUESTION ANSWERS FALL 2004 1. a. MPC = 300/375 = .8 b. C = 300 + .8Yd c. S = -300 + .2Yd d. The change in Yd for every change in Y is .75, ie. 375/500 So (1-t) = .75 Therefore, t=.25 e. T = .25Y f. the change in Im/ change in Y = 125/500 = .25 so the marginal propensity to import (im) = .25 g. Im = .25 Y h. Net Exports = Ex – Im = 500 - .25Y i. slope of AE = MPC(1-t) – im .8(.75) - .25 .6 - .25 = .35 slope of AE = .35 j. AE = C + I + G + NE AE = 300 + .8(Y-.25Y) + 200 + 300 + 500 - .25Y AE = 1300 + .35Y k. At eq., Y = AE So Y = 300 + .8Y - .2Y + 200 + 300 + 500 -.25Y Y - .8Y + .2Y + .25Y = 300 + 200 + 300 + 500 .65Y = 1300 Y = 1300/.65 = 2000 l. The spending multiplier = 1/1-MPC(1-t) + im 1/ 1 - .8(.75) + .25 1/ 1 -.6 +.25

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Unformatted text preview: 1/.4 + .25 1/.65 = 1.54 or just remember that the spending multiplier = 1/1-slope of AE so 1/1 - .35 = 1/.65 = 1.54 m. T = .25Y T = .25 (2000) = 500 n. G = 300 T = 500 so the govt.budget is in surplus o. NE = X – Im NE = 500 - .25(2000) = 500 – 500 = 0 p. Answer is d. Injections = Leakages in equilibrium so I + G + X = S + T + Im Check it out numerically by plugging in the numbers q. Answer is c. You want to increase Y by 1000 from 2000 to 3000. The spending multiplier is 1.54 So 1000 = 1.54 x change in G 1000/1.54 = change in G 649.35 = change in G r. The tax multiplier is -MPC/1-MPC (1-t) + im or - .8/.65 or –1.23 or, simply, -MPC/ 1- slope of AE...
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F07Monster Problem Ans - 1.4.25 1.65 = 1.54 or just...

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