Scribd
Upload
206 views2 pages

Exercise in Income Determination

This document contains an introduction to aggregate economics and 5 exercises involving consumption, savings, investment, government spending, taxes, and equilibrium income. The exercises ask students to: 1) Fill in a table with consumption, savings, marginal propensity to consume, and marginal propensity to save data. 2) Solve equilibrium income, tax multiplier, and change in output questions using consumption, investment, government spending, and tax functions. 3) Solve similar equilibrium, multiplier, and change questions using different consumption, investment, government spending, and tax information. 4) Solve equilibrium income, multiplier, and required policy change questions to achieve full employment using savings, government spending, and tax functions.

Uploaded by

cycc
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
206 views2 pages

Exercise in Income Determination

This document contains an introduction to aggregate economics and 5 exercises involving consumption, savings, investment, government spending, taxes, and equilibrium income. The exercises ask students to: 1) Fill in a table with consumption, savings, marginal propensity to consume, and marginal propensity to save data. 2) Solve equilibrium income, tax multiplier, and change in output questions using consumption, investment, government spending, and tax functions. 3) Solve similar equilibrium, multiplier, and change questions using different consumption, investment, government spending, and tax information. 4) Solve equilibrium income, multiplier, and required policy change questions to achieve full employment using savings, government spending, and tax functions.

Uploaded by

cycc
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
You are on page 1/ 2

School of Economics

Introduction to Aggregate Economics (ECONTWO)

Exercise # 1 (Consumption and Savings)

1. Directions: Fills in the table below:

Y C S mpc mps
0 100
100 175
200 250
300 325
400 400
500 475

2. Given the data below, solve the problems below. (3 sector, closed economy)
C = 100 + 0.8Yd I = 50
G = 50 T = 50 + 0.0737Y
a. What is the relevant equilibrium income of this economy?
b. What is the size of the relevant tax collections multiplier in this economy?
c. If the economy must be at full employment level of 9,000 and the economy
is currently at equilibrium, what is the necessary change in government
expenditures to attain potential output?
d. What will be the change in aggregate output if investment increases by
3,861?

3. Given: C = 40 + 0.8Yd G = 10
I = 60 T = 10
a. Solve for the equilibrium income.
b. Determine the values of the expenditures and autonomous tax multipliers.
c. If the taxes increase by 10, by how much will the equilibrium income
change?
d. If autonomous government expenditures increases to 30, by how much will
the equilibrium income change?

4. Given: S = -10 + 0.1Yd G = 15


I = 60 T = 12
a. Solve for the equilibrium level of income.
b. Derive the values of the government expenditure and autonomous tax
multipliers.
c. Suppose full employment income is 800, there must be (recession, inflation)
since equilibrium income is (greater than, less than, equal to) full
employment income of 800. If the economy desires to achieve full
employment, determine the required change in government spending.
d. The economy may also achieve full employment by (increasing, decreasing)
taxes by how much?

5. Given the following data, answer the questions below. (3 sector, open
economy)

C = 500 + 0.83Yd I = 400


G = 300 T = 200 + 0.1Y
X = 900 M = 700
a. What is the equilibrium income (Ye) of this economy?
b. What is the size of the government expenditure multiplier of this economy?
c. What is the size of the tax collections multiplier?
d. If the full employment income level (Yp) is 4,000, what is the necessary
change in government spending to move the economy towards this level?
e. Using your answer in letter d, how much is the government budget
deficit/surplus when the economy moves to full employment?
f. If the full employment income level (Yp) is 4,000, what is the necessary
change in tax collections to move the economy towards this level?

You might also like