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Econ 311 Quiz 2 solutions

Econ 311 Quiz 2 solutions - Intermediate Macroeconomics...

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Intermediate Macroeconomics 311 (Professor Gordon) Quiz 2, October 19, 2007; 9AM Note : This is a closed book assignment. You may use calculators. YOUR NAME: ________________________________ Directions : Answer each of the following questions. You must show all your work. Partial credit will be awarded (but it will be easier to do so if you show your work!). QUESTION 1 Consider an economy with the following components: c = .8 C a = 2000 T= 1000 + .15Y I p = 3000 G = 1500 NX = -500 (a) Calculate the multiplier in the economy. (1 point) k=1/(.2*(1-.15)+.15)=3.125=25/8 (b) What is the value of autonomous planned spending? (A p ) (2 points) A p =2000-.8*(1000)+3000+1500-500=5200 (c) What is the equilibrium value of income? (Y e ) (2 points) Y e =5200*(25/8)=16,250 (d) Show that leakages equal injections. (1 point) Leakages = S + T, T = (1000 + .15*16250) = 3437.5, C = 2000 + .8*(16250 – 3437.5) = 12250 and S = 16250 – 3437.5 – 12250 = 562.5, thus Leakages = 562.5 + 3437.5 = 4000 and Injections = I p + G + NX = 3000+1500-500 = 4000 (e) Suppose that the government determines that the desirable level of income for the economy is 20,000. However, they do not wish to change their expenditures on goods and services. Instead, they wish for C a
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