= 200 - 5P + 90 d.) Qd = 300 – 5P Qd = 290 - 5P Qs = -100 + 8P Qd = Qs Qd = Qs 290 – 5P = -100 + 8P 300 - 5P = -100 + 8P 290 + 100 = 8P + 5P 300 + 100 = 8P + 5P 390 = 13P 400 = 13P 13 13 13 13 P* = 30 400 P* = ≈ 30.77 13 Qd = 290 – 5P = 290 – 5 (30) Qd = 300 – 5P = 290 – 150 400 = 300 − 5 ( 13 ) Qd = 140 1900 Qd = 13 Qs = -100 + 8P = -100 + 8 (30) Qs = -100 + 8P = -100 + 240 400 = −100 + 8 ( 13 ) Qs = 140 1900 Qs = 13 Q* = 140 units 1900 Q* = or 146 units 13 As the income rises the demand for a For tax: certain good also increases, leading to the T = tY shift of demand curve to the right. = 0.12 (840.34) T ≈ 100.84 3. Y = C + I0 + G0 C = C0 + bYD For Disposable Income: T = tY Yd = Y – T = 840.34 – 100.84 a.) Endogenous variable: Y, C, T, YD Exogenous variable: I0, G0, C0 Yd ≈ 739.5 Parameter: b, t For Consumption: C = C0 + bYd b.) Y = c + I0 + G0 = 30 + 0.92 (739.5) = (C0 + b(Y – tY)) + I0 + G0 = 30 + 680.34 Y= C0 + bY(1 - t) + I0 + G0 Solve for Y: C = 710.34 Y – bY (1- t) = C0 + I0 + G0 Y (1 – bY (1- t)) = C0 + I0 + G0 b.) 1 – bY (1- t) 1 – bY (1- t) Y = 30 + 0.92Y(0.88) + 75 + 60 Y = C0 + I0 + G0 Y = 30 + 0.8096Y + 135 1– b(1- t) Y = 145 + 0.8096Y 1 Multiplier = Y - 0.8096Y = 165 1−𝑏 (1−𝑡) Y (1 - 0.8096) = 165 𝑌0.1904 165 c.) the parameters must satisfy these = 0.1904 0.1904 conditions: 165 Y = 0.1904 or 1. 0 < b < 1 ≈ 866.60 2. 0 < t < 1 3. The denominator 1-b(1-t) must be ΔY = 866.60 – 840.34 positive ΔY = 26.26
4. C0 = 30 c.) I0 = 60 G0 = 70 b = 0.92 t = 0.12 I0 = 70 Equilibruim for: National Income G0 = 60 Y = 30 + 0.92Y (0.88) + 60 + 70 = 30 + 0.8096Y + 130 Y = 160 + 0.8096Y a.) Y = C0 + bY (1 – t) + I0 + G0 Y - 0.8096Y = 160 Y = 30 + 0.92Y (1 - 0.12) + 70 + 60 Y (1 – 0.8096Y) = 160 Y = 30 + 0.92Y (0.88) + 70 + 60 Y0.1904 = 160 Y = 160 + 0.8096Y 0.1904 0.1904 165 Y - 0.8096Y = 160 Y = 0.1904 or ≈ 840.34 Y (1 - 0.8096) = 160 Y0.1904 = 160 0.1904 0.1904 For tax: 160 Y = 0.1904 or ≈ 840.34 T = tY = 0.12 (840.34) T ≈ 100.84 For disposable income: c.) Yd = Y – T Is saving equal to investment? = 840.34 – 100.84 Yd = 739.5 In an open economy, savings can be Calculated as: S=Y-C–T
Output Y = 500 For consumption: Taxes T = 100 C = C0 + bYd Consumption C = 5 + 0.60 (500) = 30 + 0.92 (739.5) = 305 = 30 + 680.34 C = 710.34 S = 500 – 305 – 100 S = 95 Thus, there is no changes in the equilibrium values of Y, C and T when Io Io = 100 declines from 70 to 60, and Go increase 60 to 70. - Savings (S = 95) is not equal to investment (Io = 100), saving does not 5. C= 5 + 0.75 Yd equal investment in this economy. T= 0.20Y d.) Determine the change in the equilibrium… Assume Io = 100; Go = 110; Xo = 90 & Mo = 105 Mo = 105 -20 = 85 a.) Find the equilibrium output Y = (5 + 0.60Y) + 100 + 110 (90-85) Yd = Y-T C= 5 + 0.75 (0.80Y) Y = 5 + 0.60Y + 100 + 110 + 5 = Y – 0.20Y C= 5 + 0.60Y Y = 220 + 0.60Y = 0.80 Y Y – 0.60Y = 220 Y= (5+0.60Y) + 100 +110 + (90-105) Y.040 = 220 = 5 + 0.60Y + 100+110 – 15 0.40 0.40 Y= 200 + 0.60Y Y = 550
Y – 0.60Y = 200 ΔY= 550 -500
Y0.40 = 200 ΔY = 50 0.40 0.40 Y = 500 - equilibrium output increases by 50 units when autonomous import decline by 20.
b.) If the budget in this economy balanced
T = 0.20 (500) Go = 100 T = 100
-Since the government spending (Go =
110) Is greater than tax revenue (T = 100), the budget is in deficit by 10 units
