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ECN 204 Lecture Notes - Lecture 7: Aggregate Supply, Macroeconomic Model, Address Space Layout Randomization

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limeporcupine729
27 Jan 2017
School
Ryerson University
Department
Economics
Course
ECN 204
Professor
Amy Peng

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Document Summary

Taxes and transfer payment affect consumption: net tax, nt = ty, t net tax rate, lump sum tax, di = y t, di = y nt = (1-t)y. C = 20 + 0. 8y 8 = 12 + 0. 8y. Each dollar of lump sum tax reduces autonomous consumption by 0. 8 dollar (80 cents) So c = 20 + 0. 8(1 0. 10)y. Each extra dollar of national income increase di by sh. 90 (90 cents), out of which household spend 72 cents and save 18 cents. Net tax (increasing tax rate) reduces di, therefore lowers consumption, rotate ae to the right (slope of ae is reduced: ae and c has the same slope mpc x (1-t) Multiplier effect is given by the combination of the two. The change of equilibrium gdp is given by g x multiplier. The general level of prices directly determines the purchasing power of money. Stagflation was difficult to explain with the keynesian cross model.

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Related Questions

The Modified Keynesian Model

Y = C + I + G + X – IM … equilibrium condition in a 4-sector model where:

C = 150 + 0.9DI … consumption function

I = 50 … autonomous investment

G = 100 … autonomous government spending

X = 200 … autonomous exports

IM = 100 … autonomous imports

And also:

DI = Y – T + Tr T = 0 … autonomous taxes

Tr = 0 … autonomous transfer payments

YF = 5000 … full-employment Y

1. Solve for the equilibrium level of real output/income (Y*) in this economy.

2. Given the model above, net exports equal $________. Does this represent a trade deficit or trade surplus?

3. Given the model above, the federal budget has a (deficit/surplus) equal to $________.

4. What is the value of the MPC? … the value of the MPS?

5. Calculate the “oversimplified” expenditure multiplier.

6. Suppose that full-employment (YF) equals $5000. Is there a recessionary or inflationary output gap?

7. (Refer to question “6”.) How much is the gap equal to?

8. Suppose the government chooses to eliminate the gap by using expansionary fiscal policy (i.e., increasing G). Given the numbers above, by how much would government spending (G) need to increase to achieve the goal of full-employment?

9. Suppose instead that the government decided to lower taxes to eliminate the output gap in question “6”. How much would taxes need to fall to achieve the goal of full-employment?

10. Which action (raising G or lowering T) has the largest effect on the federal budget deficit and the national debt?

11. Suppose the national debt equaled $6000 before the tax cut (refer to question “9”). What would be the value of the national debt after this policy action?