Assign10 - James E. Pesando Economics 100 Assignment #10...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Economics 100 Assignment #10 National Income and The Multiplier 1. In a particular economy, the following relationships hold (all amounts are in $billions): C = 25 + 0.6YD T = 10 + 0.15Y I = 30 G = 40 X = 15 M = 0.01Y The price level is fixed. (a) What is the equilibrium level of national income? Show your calculation. AE=C+I+G+X-M AE=25+0.6YD+30+40+15-0.01Y AE= 25+-.6[Y-(10+0.15Y)]+30+40+15-0.01Y AE=104+0.5Y Therefore, Y=AE Y=104+0.5Y Y=208 YD=Y-T (b) If the level of national income were below the equilibrium level, would actual inventory investment equal desired inventory investment? How would firms respond? Explain your answer. AE>Y Firms inventory will involuntarily decline Firms desired level of inventory> their actually level Firms increase production (c) To combat a recession, the Government decides either to increase expenditures by $2 billion or to reduce taxes by $2 billion. Which policy will have the larger impact on autonomous expenditure? On national income? Explain your answer. (note: a numerical answer is not an explanation). 1)
Background image of page 1

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

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/02/2010 for the course ECO ECO100 taught by Professor Inheart during the Spring '09 term at University of Toronto- Toronto.

Page1 / 4

Assign10 - James E. Pesando Economics 100 Assignment #10...

This preview shows document pages 1 - 2. Sign up to view the full document.

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