PLEASE ANSWER ALL PARTS OF THE QUESTION:
Consider an economy where prices are fixed. The following functions describe desired spending and taxation:
C=300+ .8Yd
I=200
G = 350
T = 100
X = IM = 0 (there is no international trade)
A) Start by calculating the equilibrium level of GDP.
B) Calculate the level of private saving (S) at equilibrium.
C) Now suppose that people in this country decide to save more at every level of disposable income. Autonomous saving, therefore, increases by 100. Calculate the new equilibrium level of GDP after this increase in autonomous saving.
D) Calculate the level of saving at the new equilibrium you found in part (c).
E) How did the level of saving at equilibrium change in part (d) from part (b)? Did saving go up, go down, or stay the same?
F) The result of part (e) is known in macroeconomics as âthe paradox of thrift.â Why is this a paradoxical result? Explain in words the economics.
PLEASE ANSWER ALL PARTS OF THE QUESTION:
Consider an economy where prices are fixed. The following functions describe desired spending and taxation:
C=300+ .8Yd
I=200
G = 350
T = 100
X = IM = 0 (there is no international trade)
A) Start by calculating the equilibrium level of GDP.
B) Calculate the level of private saving (S) at equilibrium.
C) Now suppose that people in this country decide to save more at every level of disposable income. Autonomous saving, therefore, increases by 100. Calculate the new equilibrium level of GDP after this increase in autonomous saving.
D) Calculate the level of saving at the new equilibrium you found in part (c).
E) How did the level of saving at equilibrium change in part (d) from part (b)? Did saving go up, go down, or stay the same?
F) The result of part (e) is known in macroeconomics as âthe paradox of thrift.â Why is this a paradoxical result? Explain in words the economics.
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Data for 9-4 Homework: Problem Set
| GDP | Taxes | DI | C | I | G | C+I+G |
| 1250 | 200 | 800 | 300 | 200 | ||
| 1500 | 200 | 1000 | 300 | 200 | ||
| 1750 | 200 | 1200 | 300 | 200 | ||
| 2000 | 200 | 1400 | 300 | 200 | ||
| 2250 | 200 | 1600 | 300 | 200 | ||
| 2500 | 200 | 1800 | 300 | 200 | ||
| 2750 | 200 | 2000 | 300 | 200 |
This table represents several different potential output scenarios for a hypothetical economy. Based on the information presented, complete the following:
1. Calculate the Disposable Income (DI) at each level of GDP.
2. Calculate total spending (C+I+G) at each level of GDP.
3. What is the equilibrium level of GDP in the economy?
4. When the economy is at equilibrium, what is the level of saving?
5. What is the value of the MPC?
6. What is the value of the expenditure multiplier?
7. What is the value of the tax multiplier?
8. If the government increases spending by $100, what would be the new equilibrium value of GDP?
9. If the government wanted to achieve the same change in GDP as in part 8 by cutting taxes instead of increasing spending, how large would the tax cut need to be?
