ECO 1304 Lecture Notes - Lecture 11: Disposable And Discretionary Income, Aggregate Demand, Output Gap

47 views3 pages

fuchsiabee599

3 Sep 2018

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Disposable income: di = y - t. (cid:1371) taxes (cid:1372) (cid:1373) di (cid:1372) (cid:1373) c. (cid:1373) taxes (cid:1372) (cid:1371) di (cid:1372) (cid:1371) c. The multiplier revisited component of c + i + g + (x-im) component of c + i + g + (x-im) (cid:1371) government purchases of goods & services (cid:1372) (cid:1371) total spending directly through the g. (cid:1371) taxes (cid:1372) (cid:1373) total spending indirectly by lowering disposable income &, thus, reducing the c. Part of tax cuts goes to savings. (cid:1371) income (cid:1372) (cid:1371) income taxes paid (cid:1372) smaller increase in consumption with income tax. If spending increases are financed by tax increases, the economy will expand. If tax cuts are financed by spending cuts, the economy will contract. When incomes rise, a larger amount is taken out in taxes than before, leaving a smaller. Fiscal policies that keep the deficit (g-t) constant do not keep ad constant.

Related Questions

C = 0.8(DI) + 1000	C = Consumption expenditure, DI = Disposable Income
I = 5000	I = Investment expenditure
G = 3000	G = government expenditure
X = 2000	X = spending on exports
M = 1800	M = spending on imports
DI = Y - T	Y = real GDP, T = tax revenues/>
T = 3000

Which of the following increases equilibrium real GDP by $2000
Note: you should use the expenditure multipliers from class to get your answer.

	a.	increase in government expenditure (G) by $2000 and pay for it by raising taxes (T) by $2000
	b.	increase government expenditure (G) by $2000 and pay for it by borrowing money
	c.	increase taxes (T) by $2000
	d.	decrease taxes (T) by $2000
	e.	all of the above
	f.	none of the above

greybutterfly911

On the planet Omicron Persei 8, government spending is $1000, net taxes are $1200, and planned investment is $1400. Consumers spend according to the equation C = 100 + 0.8Yd, where Yd represents disposable income. Given this information, fill out the table below to determine which of the output levels represents a macroeconomic equilibrium, then answer the questions that follow. Output (Income) Y Net Taxes T Disposable Income Yd Consumption C Planned Investment I Government Purchases G Planned Aggregate Expenditure AE Unplanned Inventory Change 6200 1200 5000 3850 1400 1000 6250 -50 6700 1200 5500 4225 1400 1000 6625 75 7200 1200 6000 4600 1400 1000 7000 200 7700 1200 6500 4975 1400 1000 7375 325 8200 1200 7000 5350 1400 1000 7750 450

An a. Which level of output is a macroeconomic equilibrium? There is no level of equilibrium based on inventory levels.

b. Is the government budget balanced, in deficit, or surplus, and by how much? Since the government is spending less than it is collecting in taxes, we are showing a surplus.

c. Find the marginal propensity to consume, and the marginal propensity to save. d. Find the government spending multiplier. If the government wanted to increase the equilibrium level of income by $1,000, how much would it have to increase government purchases? e. Find the tax multiplier. If net taxes were lowered by $100, what effect would it have on the equilibrium level of income? Give a specific numerical answer.

cerisewallaby167

The Modified Keynesian Model

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

C = 150 + 0.9DI â¦ consumption function

I = 50 â¦ autonomous investment

G = 100 â¦ autonomous government spending

X = 200 â¦ autonomous exports

IM = 100 â¦ autonomous imports

And also:

DI = Y â T + Tr T = 0 â¦ autonomous taxes

Tr = 0 â¦ autonomous transfer payments

YF = 5000 â¦ 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? â¦ the value of the MPS?

5. Calculate the âoversimplifiedâ expenditure multiplier.

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

7. (Refer to question â6â.) 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 â6â. 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 â9â). What would be the value of the national debt after this policy action?

azurellama883

ECO 1304 Lecture Notes - Lecture 11: Disposable And Discretionary Income, Aggregate Demand, Output Gap

Document Summary

Get access

Related textbook solutions

Principles of Economics

Principles of Macroeconomics

Principles of Microeconomics

Related Documents

ECO 1304 Chapter Notes - Chapter 8: Consumption Function, Disposable And Discretionary Income, Consumer Spending

ECON 1020 Chapter Notes - Chapter 24: Business Cycle, Fiscal Multiplier, Transfer Payment

ECON 202 Lecture Notes - Lecture 8: Full Employment, Expenditure Function, Fiscal Multiplier

Related Questions