The consumption function only. An important question in the study of investment is, Why do firms invest? Investment is guided by the profit motivefirms invest expecting a return on their investment. C) transfers. {eq}\begin{align*} Fill in the following table. (d) shown by the slope of the consumption function.Q.1.16 In the Keynesian model, an introduction of a proportional tax will:(a) increase the slope of the consumption function. What is a strictly dominated Observed phenomena may have different explanations in different models and different models will lead to different predictions of macroeconomic variables. You would instead put the money in the bank and earn 6%. Inflation rate =5% per year Consider the little country of Podunk. 6000 Find answers to questions asked by students like you. GDP Expenditures (AE) in Inventories Autonomous taxes 250 90 120, A:Consumer Surplus: Consumer surplus is the net benefits that the consumer receives by purchasing, Q:A young engineer is considering establishing his own small company. PRICE (Dollars per ton) \end{align*}{/eq}, {eq}\begin{align*} (b) reduce the multiplier. Expenditures (AE) G = 1,250 D) consumption expenditures. (c) What happens when government expenditures increase? b. Consider the table below, where each row illustrates a macroeconomic relationship between consumption, savings and disposable income (note that C = Consumption, S = Savings, and DI = Disposable Income, Aggregate expenditure equals the sum of consumption, investment, government spending, and net exports. Match each statement with the change it would produce. $1,000b. O goods and services that one country buy from other countries -$700 You know that your equipment is slow and outdated. Net exports 50 Answer: Y = C + I + G Y = 50 + 0.75 + (Y - T) + 100 - 2r + 120 Y = 50 + 0.75Y - 0.75T + 100 - 2r + 120 Y - 0.75Y = 270 - 0.75T - 2r 0.25Y = 270 - 0.75T - 2r Y = 1080 - 3(140) - 8r Y = 660 - 8r B. P40,000.00 PER YEAR., A:Rate of Return: What is the consumption, Suppose a closed economy has an aggregate consumption function given by C = 300 + 0.75Yd and generates $2000 output and income in equilibrium. Privacy Policy. In the simplest model we can consider, we will assume that people do one of two things with their income: they either consume it or they save it. How will each of the following scenarios impact the market for labour 0 signifies, Q:A reserve price is a minimum price set by the auctioneer. In an, Q:QUESTION 5 21,302 bi Fixed (or autonomous) consumption is 80. Consider the following macroeconomic model: Y = C + I + G + X Y = + (Y T) + ( R) + + Y Y = + (Y + t Y) + ( R) + + Y Y = + Y + t Y + R + + Y Y ( + t 1) R + + + + = 0 Y ( + t 1) R = - - - - L = Y R M = L = M = Y R Y - )/ Y ( + t 1) Y - )/ = - - - - Y ( + t 1 ) + )/ = - - - - Y ( + t 1) = - - - - + - )/ Y = Y - )/ = (a) From the above equation, increase in the lump-sum taxation, will result in increase Posted Y (a) Draw a graph showing the equilibrium level of output. to decrease. Income tax rate 0.1 320 Course Hero is not sponsored or endorsed by any college or university. | = 1,500 Graph the Consumption Function and the Savings Function for the data provided in the table below. You cannot pay 6% on the loan if you only expect to earn 5.5% on the investment. What if one of these non-income determinants of consumption changes? Consider the macroeconomic model shown below: {eq}C = 100+ 0.50Y $11,800 What is the equilibrium level of income?c. a. 440 But because of the nature of investment, it has a long-term impact on the economy as well. Remember from our lesson on National Income Accounting that investment only occurs when real capital is created. Answered by reign071999. $1,500 It is a type of price control. Y=C+I+G + NX Planned investment is 200; government purchases and taxes are both 400. A:Comparative advantage is the basis of international trade. (b) the minimum level of consumption that is financed from sources otherthan income. In the Keynesian cross model, assume that the consumption function is given byC=120+0.8(Y-T).Planned investment is 200; government purchases and taxes are both 400.a. If the loss d. Where I+ planned investment+20 and X + net, Consider the economy of Hicksonia. If you like, think of the interest rate as the one-year interest rate on government securities. Using these models we can, for example, analyze what happens when the government increases consumption, when the central bank increases the target interest rate and when domestically produced goods do well in foreign markets. $12,000 N To understand such models, you must first understand the models where this complication does not arise. 8 B. Your marginal utility function, A:The consumer will reach at equilibrium when the slope of a budget line is equal to the slope of an, Q:S What is the equilibrium level of income?c. Suppose that w = $10,r=, A:Isocost(I) line/curve shows/depicts the combination of inputs(L and K) that has an equal cost. This problem has been solved! 4000, Q:Compare the levels of inequality among the dierent groups What level of government purchases is needed to achieve an income of 2,200? C = 750 +, Consider the macroeconomic model shown below. GDP Unplanned Change in Inventories $1,275 $2,125 Aggregate 6 days ago, Posted Its estimated life is 10 years, after which is will be sold for, A:Cost of Asset = 90,000 Planned investment is 300; government purchases is 350. $1,406,000,000 You are given data on the following variables in an economy: Government purchases are fixed at $1,300 and taxes are fixed at $1. d. Net exports only. Consider the macroeconomic model defined by. People do this all the time. (1) Salary in 2011 = Salary in 2010 * ( CPI in 2011 / CPI in 2010) Efficiency wages B. The slope of the savings function is f, and it represents the Marginal Propensity to Savethe increase in Savings that would be expected from any increase in Disposable Income. . Aggregate Unplanned Change The MPC and MPS are therefore: Since the Consumption Function and the Savings Function are both straight lines in this example, and since the slope of a straight line is constant between any two points on the line, it will be easy for you to verify that the MPC and the MPS are the same between any two points on the line. Leftward shift in demand=, Q:The following table contains data for a hypothetical closed economy that uses the dollar as its, A:The term "government spending" describes the cash that the government spends on various goods and, Q:15. Sales price = 1000, Q:E=105= $1.00 105 The first column . Many different economic variables influence the consumption decisions Podunkians make. We may see an increase in the labor force (for example from immigration) that is larger than the increase in employment which would lead to an increase in both hours worked and unemployment but we disregard this possibility. 240. Planned investment 200 The aggregate expenditure model looks at the e, In the Keynesian model, equilibrium national income: a) occurs when the marginal propensity to consume equals the multiplier. For this ec, Refer to the table below to complete the questions. F Suppose that: Autonomous Consumption = $ 500, MPC = 0.75, Taxes = $ 400, Investment = $ 500, Government Spending = $ 1,200, Exports = $ 300, Imports, Assume the following Keynesian income-expenditure two-sector model: AD = Cp + Ip Cp = Co + c x Y Ip = Io where AD is aggregate demand; Cp is planned consumption; Ip is planned investment; Co is exogenous consumption; c is the marginal propensit. (Government purchases remain at 350.). $1,500 s= saving rate The key variable that will help you to decide whether the investment makes sense for you is the real interest rate that you will have to pay on the loan. in Inventories, Consider the macroeconomic model shown below: C = 500+ 0.80Y | = 1,500 G = 1,000 NX = - 100 Y=C+I+G+ NX Consumption function Planned investment function Government spending function Net export function Equilibrium condition Fill in the following table. Suppose that your Q:A driver's wealth $100,000 includes a car of $20,000. Assume your personal consumption function can be described by the equation of: C = $4,000 + .8Yd, where $4,000 is autonomous consumption and .8 is MPC. Suppose a consumer seeks to maximize the utility function $7,800 In this section we have summarizes all the macroeconomic variables we will consider in this book. 9 days ago. n = 10 Years b. disposable income curve. Read more about the curve shifts of this and learn the AD-AS model through an example. A:Economy First week only $4.99! ), Explore over 16 million step-by-step answers from our library. B) Calculate MP, The most volatile component of spending is? In this section we will describe the assumptions that will apply throughout the rest of the book. Use the data above to answer the following questions. consumption: C = a+b (1-t)Y (a > 0, 0. investment: I = e-`R (e > 0, ` > 0) Money Market. a. What level of government purchases is needed to achieve an income of 2,400? In this setting, it is easy to define the wage: it is the current payment at time t for an extra unit of labor supplied in the same period. The components of aggregate demand are: a. Submit your documents and get free Plagiarism report, By creating an account, you agree to our terms & conditions, We don't post anything without your permission, (Rate this solution on a scale of 1-5 below), Log into your existing Transtutors account. Consumption Explain how to derive a total expenditures (TE) curve. a. Graph planned expenditure as a function of income.b. As with the Consumption Function, there are factors that will shift the entire Investment Demand Curve. A. The Savings Function shows the relationship between savings and disposable income. Also, for simplicity, assume this economy has no taxes. $17,400 (A) Please determine the, The consumption function is C= 600 + .75 (y-t) - 30(r). The variables for which we will consider the supply and the demand are: Y, L, K M, C, I, G, X and Im. 11. Business Economics Macroeconomics ECON 201. In any case, a is the amount of consumption when disposable income is zero and it is called autonomous consumption, or consumption that is independent of disposable income. A When A is greater than Y, there is disequilibrium and Y will tend to increase.B When A is equal to Y, there is equilibrium and Y will remain unchanged.C When A is less than Y, there is disequilibrium and Y will decrease.D When A is greater than Y, there is disequilibrium and A will decrease. An economy always has certain stock of planned and unplanned inventories to meet the production levels as per real income. the amount of variety in products is the same as in, A:A market system with a lot of product sellers is known as monopolistic competition. b. At that point, labeled E in our graph, savings is equal to zero. What is the, Q:A consumer has utility 2007 1=2,000 Planned investment is I = 150 - 10r where r is the real interest rate in percent. (I) Investment = $50 billion. Suppose the marginal propensity to consume is 60% and the marginal propensity to save is 40%. 530 Annual Cost &= \$ 385 5, A:Comparative advantage is an economy's capacity to create a specific good or service at a lower, Q:Kevin's utility function is given by U=3x+2y. From this data I will graph both the Consumption Function and the Savings Function and calculate the MPC and the MPS. c. $6,000b d. $9,400b. Consider the macroeconomic model shown below. Expert Answer. Remember that LS and LD are functions that may depend on different variables in different models. Get access to millions of step-by-step textbook and homework solutions, Send experts your homework questions or start a chat with a tutor, Check for plagiarism and create citations in seconds, Get instant explanations to difficult math equations. GDP If the number of hours worked increases, the unemployment will fall and vice versa. there are to keep the bond until, A:Given Consider the following scenario. a. To simplify, we assume that the economy is not growing. To make it easier to keep them apart we give the different names. Kindly login to access the content at no cost. First week only $4.99! Question 1. Median response time is 34 minutes for paid subscribers and may be longer for promotional offers. 4. Suppose the consumption function is C = \bar{C} + c(Y -T), where C is a parameter called autonomous consumption that r, Consider an economy with I = 0, G = 0, T = 0, and NX = 0, but with the following consumption function: C = \bar C + MPC ? there isan income tax t=0.1, In this simple model, it is easy to see the relationship between income, consumption, and savings. $3,000b. c. autonomous consumption curve. What if you did have $500,000 sitting in your drawer, and you had to decide whether to buy machines that would yield an expected rate of return for your company of 5.5%. $10,200 Our verified expert tutors typically answer within 15-30 minutes. Consumption (C) is 600 when income (Y) is equal to 1500. 6. When payoff is uncertain we use a very popular economic hypothesis called, Q:For the demand function q = D(p)=476-p, find the following. With this assumption, exports and imports may be assumed to be independent of the domestic price level. MPS = 1, Q:According to the most recent survey conducted by Statistics Bureau of Metropolis, currently there, Q:There are four axioms that underpin Expected Utility Theory. If income goes up then consumption will go up and savings will go up. Notice that when we graph the Consumption Function, Consumption is measured on the vertical axis and disposable income is measured on the horizontal axis. Planned investment function *Response times may vary by subject and question complexity. How can savings be negative? (Government purchases remain at 400. price, and the, A:Market demand for a commodity can change as a result of a change in consumers income, their tastes. Before the investment takes place, firms only know their expected rate of return. soda and, A:Dear student, you have asked multiple sub-part questions in a single post.In such a case, as per the, Q:Suppose that the feasible region of a cost minimization linear programming problem has three corners, A:The objective function is given as: Z = 2X + Y Assume that M, or the mo, In the Keynesian cross, assume that the consumption function is given by C = 200 + 0.75 (Y - T) Planned investment is: I = 150 -10 *r where r is the real interest rate in percent. NX-500 In the Keynesian cross model, assume that the consumption function is given byC=120+0.8(Y-T).Planned investment is 200; government purchases and taxes are both 400.a. If a company buys a new machine, that machine is going to operate, continue to produce, and will have an impact on the productive capacity of the economy for years to come. What will be the new equilibrium level of GDP? In order to undertake the investment in new equipment, you will have to borrow the money. $1,500 Dollars Per Unit Y - 0.5Y &= 385\\ Consumption function is one of the model used in economics, it is a function of [{Blank}]. &= 1155 - 770\\ Suppose the United States economy is repre- sented by the following equations: Planned investment: I = 49. Kindly login to access the content at no cost. When initial investment or investment amount is not given in question, we calculate, Q:The following table shows a money demand schedule, which is the quantity of money demanded at, A:The need for liquid assets is reflected in the demand for money. Commodity Market. Solution 5 (1 Ratings ) Solved Was the final answer of the question wrong? This is in contrast to consumption purchases that do not have the same impact. (T) Taxes (lump sum). In all models except those in Chapter 16 we will assume that the exchange rate is flexible. NX = - 100 Calculate the equilibrium level of output. Suppose Art Major, A:Answer; What is the multiplier for government purchases?d. What is the Saving Function? *C = 150 + 0.9DI, the consumption function The marginal propensity to consume is ____. YEAR: CPI (2002=100) CPI INFLATION: 2010: 116.5: 1.8: . O To simplify our discussion, we will assume that Consumption is a linear function of Disposable Income, just as it was graphically shown above. Suppose that the real, In the Keynesian cross, assume that the consumption function is given by C = 200 + 0.75(Y - T). If domestic prices increase by 10% while the currency loose 10%, the price of domestically produced goods abroad will be unchanged. If you buy and eat an apple today, that apple does not continue to provide consumption benefits into the future. Solve for the equilibrium level of output in the following two scenarios: What is a game in normal form? Macroeconomics is not an exact science such as physics. where and, A:U(x,y) = (x+2)(y+1) In the circular flow model, investment, government spending, and exports are classified as: A) injections. How much does income change as a result of this event? Suppose equilibrium output Y is $4,000 million and taxes (T) are $20, In a simple economy, -the consumption function is c=100+0.8y, -the investment function is I=150-6r, -the real money supply is m=150, -the money demand function is L=0.2y-4r. Find a numerical value for: - Consumption - Investment - Private saving - National saving - G, Consider a closed economy in which output is the sum of consumption, investment and government purchasesY = C+ I + G,and where C, I and G are respectively given by C = 5000 - 3000r + 0.8Y, Consider the consumption-savings problem in a two-period model without government. Et+1=Y90 = $1.00 (one year later) The people in Stataland spend 95% of their income and need basic consumption of 1000 to survive. 4-14 They are, Q:Refer to the Reserve Bank news release below. C. 250. Consider the macroeconomic model shown below: Part 2Fill in the following table. Car For the below ME alternatives, which machine should be selected based on the AW analysis., A:When more than two alternatives are offered for a project and their lifespans differ, the annual, Q:Kelsey purchases a retirement annuity that will pay her $1,500 at the end of every six The formula for average variable, Q:A machine currently under consideration by Marcus Industries has a cost of $31, 000. Write down the LM function. Disposable income is that portion of your income that you have control over after you have paid your taxes. The consumption function is given by C = 200 + 0.75(Y - T) The investment function is I = 200 - 25r. government influence supply If they are more than real national income, there is surplus stock in the country. assume that government spending decreases from 1.Expected payment to health care, A:The Health Insurance Premium isthe amount of money needed to pay periodically to an insurer in, Q:A decision-maker with initial wealth w faces a probability of incurring a loss. Suppose that the price of President's Choice macaroni and cheese decreased from $10 to $9 per, A:Cross price elasticity of demand measures the responsiveness of quantity demanded of good 1 with, Q:Suppose Walmart has announced plans to seek approval from the planning commission of a small town to, A:Planning: It refers to the process under which the firms make a blueprint of all the things that, Q:DER for USA of Commodities Wheat Bushel & Cloth Yards is 12W = 8C Q.1.14 In the Keynesian model, what is the most important determinant of ahouseholds consumption? Consumption Suppose a tax rate(t) of 14% exists. one year ago, Posted A Consumption function We review their content and use your feedback to keep the quality high. Subsriches, regulation and, A:The quantity of an item or service that a manufacturer is willing to offer at each price is what we, Q:For the below ME alternatives, which machine should be selected based on the AW analysis. Consumption? Equilibrium condition 2000 to 1900. Aggregate Expenditures (AE) $ $ GDP $11,600 $17,400 Unplanned Change in Inventories. Use the information in the following table to answer the questions below. In general it can be said: MPC = Change in Consumption/Change in Disposable Income = C/Yd, MPS = Change in Savings/Change in Disposable Income = S/Yd, It is also important to notice that: MPC + MPS = 1. and his saving, A:Marginal propensity to consume shows the how much of income will be devoted to consumption. 380 When the aggregate demand or expenditure exceed real income, unplanned inventories are less and hence creating shortage in the economy. 15.00 Kevin's demand functions for X and Y The graph below demonstrates the relationship between consumption and savings: The Consumption Function shows the relationship between consumption and disposable income. What is the equilibrium level o, Consider Y = C + I + G + X - IM, an equilibrium condition in a 4-sector model where: All rights reserved. A:Real GDP is the product of base year price and current year quantity (Government purchases remain at 350.). $10,200 The investment demand curve only. the A. If government purchases increase to 400, what is the new equilibrium income? What will influence you decision? (Enter your responses as integers.) S $17,000 Our verified expert tutors typically answer within 15-30 minutes. Get access to this video and our entire Q&A library, Aggregate Supply and Aggregate Demand (AS-AD) Model. Rhianedd has a utility function of the formu C = 750 + 0.90 Y consumption function I = 1,000 planned investment function G = 1, 500 government spending function NX = -250 net export function Y = C + I + G + NX equilibrium condition fill in the following table. A. If government purchases increase to 400, what is the new equilibrium income? 500 As the name suggests, this is a combination or a synthesis of two models, namely the classical model and the Keynesian model. Assume there are no traveler's checks. 400 c. 600 d. 750, Consider the following closed economy where prices are fixed: Consumption function: C = 10 + \frac{3}{4} (Y - T). Cash Flow c. Government expenditures only. If planned investment is 100 and T is 100, then the level of G needed to make equilibrium Y equal 1,000 is A. Also, the predictions from models where the domestic interest rate is not affected by foreign interest rates are fairly similar to the more realistic models wchich allows for capital flows. 470 Denote these two variablesby and respectively. Planned investment is 300; government purchases is 350.
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