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Problem Set 09

macro economics

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48 views

Problem Set 09

macro economics

Uploaded by

breagabe100
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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ECON 162-A1, A2 Kenny Christianson

Spring 2024 due: April 19

PROBLEM SET NUMBER NINE

1. In the classical model, what is the effect of an increase in government spending that is not
financed by an increase in taxes (an increase in the deficit)? How do prices, real GDP,
consumption, saving, investment spending, and real interest rates change as a result of the
increase in government spending? Explain and show graphically.
(Hint: Use the market for loanable funds model.)

2. Assume that the level of autonomous consumption in Mudville is $2000. If the marginal
propensity to consume is 0.8, what is the consumption function? Saving function? Give an
equation for each and show each graphically. At what level of income is saving = 0? Show on
your graphs.

3. Suppose you are given the following fixed-price Keynesian model for the economy of
Boogerland:

C = 500 + 0.75Y
I = 300
G = 200
(X – M) = 0
T=0

a. Find the equilibrium level of real GDP. What is the spending multiplier in this model?
b. Assume investment increases by $100. What is the new equilibrium?
c. Use a “Keynesian Cross” (45-degree line) graph to show the equilibrium levels of GDP in
parts a) and b). (This is also known as the income-expenditure model.) Use your graph and the
multiplier concept to explain how the economy moves from one equilibrium to the next. Be sure
to label all axes, curves, and equilibrium points.

4. Assume you are given the following information for the economy of Macroland:

GDP C S I G (X – M) AE

0 200 _____ _____ _____ 0 _____


500 600 _____ 100 100 0 _____
1000 1000 _____ _____ _____ 0 _____
1500 ____ _____ _____ _____ 0 _____
2000 1800 _____ 100 100 0 _____
2500 2200 _____ 100 100 0 _____
3000 2600 _____ 100 100 0 _____
3500 ____ _____ 100 100 0 _____
4000 3400 _____ 100 100 0 _____
Econ 162-A1, A2 Spring 2024 Problem Set 9 2

a. What is the MPC in this model? The MPS?


b. Fill in the blanks in the table above.
c. What is the level of equilibrium GDP? How do you know?
d. If investment spending increases by $100, what is the new level of equilibrium
GDP?

5. Using aggregate demand and aggregate supply analysis, show the effects of the following
(Assume a Keynesian aggregate demand curve and ordinary upward-sloping aggregate supply
curve.):
a. a decline in the price level
b. an increase in export spending
c. an increase in the price of resources.
d. an income tax cut
e. an increase in the value of the dollar.

6. SOOT Survey

The SOOT (Student Opinion Of Teaching) surveys are available on line. To access the SOOT
survey for this course, go to

soot.binghamton.edu

to complete the survey. There will be surveys for both the lecture and discussion section, please
complete both. The results are anonymous, and I will only see the aggregated results. Thank
you for your feedback.

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