Study Questions for Lecture 9

# Study Questions for Lecture 9 - What is the value of the...

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Questions for Lecture 9 Questions from Lecture 9. 1. Assume that the expression for total expenditure is E = A 0 – c r + b·(1- τ )Y. Use a graph to show that is the intercept increases to A 1 > A 0 , the resulting increase in the equilibrium level of output is greater than A 1 – A 0 . 2. Assume that the expression for total expenditure is E = A 0 – c r + b·(1- )Y. Solve for the equilibrium level of output. (Remember to use E = Y as the second equation and act like you have two equations and two unknowns, E and Y .) Repeat for E = A 0 – c r + b·(1- )Y and use your two results to find the expression for the multiplier. 3. Explain why a decision by a group of consumers to increase their spending by \$100 million will cause output to increase by more than \$100 million without using the formal model. 4. Assume that the tax rate is 0.50 and the marginal propensity to consumer is 0.60.
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Unformatted text preview: What is the value of the multiplier? 5. Assume that the tax rate is 0.35 and the marginal propensity to consumer is 0.50. What is the value of the multiplier? 6. Assume that the tax rate is 0.25 and the marginal propensity to consumer is 0.50. What is the value of the multiplier? 7. Suppose A – c r = 9.5 trillion dollars, the marginal propensity to consume is 0.6 and τ = .038. What is the equilibrium level of income? Illustrate your answer with a graph. What is the value of the multiplier? What is the new equilibrium level of output if A – c r declines to 9.2 trillion dollars? 8. What are the two ways that we can use our macroeconomic model? Briefly explain....
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