ECON 102 Chapter 10: Aviva Kahn, Econ102, Stevenson, Lecture 10 Reading Notes

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ECON 102 Full Course Notes

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Total spending on domestically produced final goods and services. Gdp= c + i + g + nx. Closed economy savings = investment: assume nx = 0. Total income = total consumption spending = savings. C + g + s = c + g + i. Budget surplus: government saves more tax revenue than it spends: positive. Budget deficit: government spends more than it collects in taxes: (cid:862)(cid:374)egati(cid:448)e (cid:271)udget surplus(cid:863, (cid:862)dissa(cid:448)i(cid:374)g(cid:863) Sgovernment = t g tr: t = tax revenues, g = government spending, tr = government transfers. Inflows: foreign savings that finance our investment spending. Outflo(cid:449)s: do(cid:373)esti(cid:272) sa(cid:448)i(cid:374)gs that fi(cid:374)a(cid:374)(cid:272)e other (cid:272)ou(cid:374)tries" i(cid:374)(cid:448)est(cid:373)e(cid:374)t spe(cid:374)(cid:272)i(cid:374)g. Net capital inflows (nci) = imports exports. Price= nominal interest rate (unadjusted for inflation) = r. Interest needed because there are opportunity costs of lending money: people only supply money if returns will be greater than what they can do now with the money.

Related Questions

I'm a bit confused about this question, help would be much appreciated.

The following macroeconomics equation describes an accounting identity (i.e. fact) relating national savings (S) to total investment (I), government spending (G), tax revenue (T), exports (X), and imports (M):

(S-I)= (G-T)+(X-M)

Assume a country has a net-zer trade balance (X-M=0)

A) Suppose a country experiences a government budget deficit, (G>T). What can we infer about the relationship between national savings (S) or investment (I)? Explain which is greater.

B) Now, suppose a country experiences a government budget surplus (G<T). Which is greater, national (S) or investment (I)? Explain.

carminedolphin386

Assume that the equations below describe the expenditures within a particular macroeconomy and that these equations conform to the assumptions we've made in the lecture regarding the fixed price level Aggregate Expenditure model. All values for expenditure and income are dollar amounts, but for simplicity, we've dropped the $ below.

C = 0.8(DI) + 1000	C = Consumption expenditure, DI = Disposable Income
I = 2000	I = Investment expenditure
G = 1000	G = government expenditure
X = 1600	X = spending on exports
M = 1800	M = spending on imports
DI = Y - T	Y = real GDP, T = tax revenues/>
T = 1000
Yp = 12000	Yp = Potential GDP

Given the equations above, we can describe the GDP, government budget, and net exports in this economy. Select three characteristics from the list below which accurately describe this economy. Note that there is no partial credit on this question. I.e., your answer will either be all correct, or all wrong.

	a.	inflationary gap
	b.	recessionary gap
	c.	no output gap
	d.	government budget surplus
	e.	government budget deficit
	f.	balanced government budget
	g.	trade deficit
	h.	trade surplus
	i.	net exports of zero

pucearmadillo585

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

ECON 102 Chapter 10: Aviva Kahn, Econ102, Stevenson, Lecture 10 Reading Notes

ECON 102 Full Course Notes

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