1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
arlik [135]
3 years ago
14

Algebra of the income-expenditure model Consider a small economy that is closed to trade, so that its net exports are zero. Supp

ose that the economy has the following consumption function, where C is consumption, Y is income (real GDP), IP is planned investment, G is government purchases, and T is taxes:________. C = $20 billion+0.75×(Y – T) Suppose G=$35 billion, IP=$60 billion, and T=$20 billion. Given the consumption function and the fact that, in a closed economy, planned expenditure can be calculated as Y=C+IP+G, the equilibrium income level is ______ billion. Suppose that government purchases are increased by $100 billion. The new equilibrium level of income will be equal to ______ billion. Based on the effect of the change in government purchases on equilibrium income, you can tell that this economy's multiplier is equal to _______.
Business
1 answer:
ioda3 years ago
4 0

Answer:

a. The equilibrium income level is <u>$100 billion.</u>

b. The new equilibrium level of income will be equal to <u>$500 billion</u>.

c. This economy's multiplier is equal to<u> 4</u>.

Explanation:

a. Calculation of the equilibrium income level

Since;

Y= C + IP + G ........................... (1)

Where;

C = $20 billion + 0.75 × (Y – T)

G = $35 billion

IP=$60 billion

T = $20 billion.

Remove the billion now for simplicity purpose to include later, substitute the values into equation (1) and solve for Y, we have:

Y = $20 + 0.75 * (Y – $120) + $60 + $35

Y = $20 + 0.75Y - (0.75 * $120) + $95

Y - 0.75Y = $20 + $95 - $90

0.25Y = $25

Y = $25 / 0.25

Y = $100

Therefore, the equilibrium income level is <u>$100 billion.</u>

b. Suppose that government purchases are increased by $100 billion. The new equilibrium level of income will be equal to ______ billion.

With this, we now have:

G = $35 billion + $100 billion = $135 billion

Replace this with G in part a and substitute other values as already given in part a into equation (1) and solve for Y, we have:

Y = $20 + 0.75 * (Y – $120) + $60 + $135

Y = $20 + 0.75Y - (0.75 * $120) + $195

Y - 0.75Y = $20 + $195 - $90

0.25Y = $125

Y = $125 / 0.25

Y = $500

Therefore, the new equilibrium level of income will be equal to <u>$500 billion</u>.

c. Based on the effect of the change in government purchases on equilibrium income, you can tell that this economy's multiplier is equal to _______.

Since the change in government purchases makes equilibrium income level to increase from $100 billion to $500 billion, we can calculate the rate of change in the equilibrium income level as follows:

Rate of change in equilibrium income = (New income – Previous income) / Previous income = ($500 - $100) / $100 = 4

With the rate of change of 4, we can tell that this economy's multiplier is equal to 4.

This can be confirmed using the multiplier formula as follows:

Multiplier = 1 / (1 – MPC) ……………………….. (2)

Where;

MPC = 0.75 from the consumption equation given C = $20 billion + 0.75 × (Y – T).

Substitute for MPC in equation (2), we have:

Multiplier = 1 / (1 – 0.75)

Multiplier = 1 / 0.25

Multiplier = 4

Which is the same as already obtained above.

Therefore, this economy's multiplier is equal to<u> 4</u>.

You might be interested in
Danny "dimes" donahue is a neighborhood's 9-year-old entrepreneur. his most recent venture is selling homemade brownies that he
skelet666 [1.2K]

Answer:

A) Price elasticity of demand = 8

B) PED is elastic

C) increase Danny's total revenue

Explanation:

we can calculate the price elasticity of demand using the formula:

PED = % change in quantity demanded / % change in price = [(300 - 100) / 100] / [(1.5 - 2) / 2] = (200 / 100) / (-0.5 / 2) = 2 / 0.25 = 8

if the PED is the same when the price decreases from $1 to $0.50, total revenue will    :

  • when price = $1.50, total revenue = $1.50 x 300 = $450
  • when price = $1, total revenue = $1 x 1,100 = $1,100

*a 33.33% decrease in the price will cause a 266.6% increase (= 33.33% x 8) increase in the quantity demanded = 300 units + (300 x 266.6%) = 300 + 800 = 1,100 units

7 0
3 years ago
Conventional promotional efforts and "sale speak" should be used in all of a company's social media conversations to persuade th
Keith_Richards [23]

The answer to the statement is false. It is because it is restricted to use conventional promotional efforts in which it shouldn’t be used.  As this is only applicable in the right place and time, addition to that, sale speak shouldn’t also be used because audiences usually rejects it.

7 0
3 years ago
If there is a high demand for a product, the price for that product will
bija089 [108]

Answer:

lower

Explanation:

As people would make a smaller profit but more if it accumulating it to get bigger than expensive with less sales.

4 0
3 years ago
when the market demand curve crosses the long-run average total cost curve where average total costs are declining, the firm is
cluponka [151]

Answer: Natural monopoly

Explanation:

A natural monopoly is a form of monopoly that comee into being due to huge start-up costs and also economies of scale. A firm that has a natural monopoly may be the only producer of a particular good or service.

A natural monopoly occurs when the long-run average total cost curve is crossed by the markwt demand curve when the average total costs are still diminishing.

5 0
2 years ago
Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserv
Svetllana [295]

Answer and Explanation:

a. The completion of the following table to reflect any changes in First Main Street Bank's T-account is shown below:-

<u>First Main Street Bank's Balance Sheet </u>

<u>Assets           Amount          Liabilities                         Amount</u>

Reserves     $750,000      Checkable Deposits       $750,000

b. The completion of the following table to show the effect of a new deposit on excess and required reserves is shown below:-

<u>Amount deposited</u>      Change in excess  Change in required

                                            <u>reserves</u>                     <u>reserves</u>

$750,000                            $600,000                    $150,000

                                  ($750,000 - $150,000)     ($750,000 × 20%)

3 0
3 years ago
Other questions:
  • DYI Construction Co. is considering a new inventory system that will cost $750,000. The system is expected to generate positive
    7·1 answer
  • When determining costs of jobs, how does a company account for indirect materials?
    14·1 answer
  • Calculation of Cost of Goods Sold: Periodic Inventory System with Sales Returns and Allowances
    12·1 answer
  • Gardening supplies are hot now but they haven’t always been why is this true of other businesses too
    15·1 answer
  • The New American Enterprise Mutual Fund's portfolio is valued at $120,000,000. The fund has liabilities of $4,000,000, and the i
    7·1 answer
  • What is the difference between direct and indirect competition?
    6·1 answer
  • Statistical process control (SPC) is the application of statistical techniques to determine whether a quantity of material shoul
    12·1 answer
  • Android Products, Inc., agreed to accept a $1,000, one-year, 10 percent note from C. Mate. On its maturity date of December 16,
    14·1 answer
  • Keynes argued that: Group of answer choices the distinction between the short run and the long run is irrelevant. the long run i
    13·1 answer
  • To partially eliminate the problems that are associated with the short-term focus of return on investment, residual income, and
    14·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!