ECON1102 Lecture Notes - Lecture 9: Macroeconomic Model, Disposable And Discretionary Income, Ceteris Paribus

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browngrasshopper99

20 Jul 2018

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The amount of money that consumers have available to devote to spending after they have paid their taxes and received transfer payments. (cid:862)cu(cid:396)(cid:396)e(cid:374)t(cid:863) (cid:396)efe(cid:396)s to the ti(cid:373)e pe(cid:396)iod u(cid:374)de(cid:396) a(cid:374)al(cid:455)sis. Much spending is unavoidable or nondiscretionary things like rent, basic food, requirements rather than discretionary things like movies, ga(cid:373)(cid:271)li(cid:374)g . Consumer spending will vary as yd varies. Yd goes up -> c will go up. Yd falls -> c will fall: expected future income. If consumers expect to have more future yd than they have now, this tends to raise their current spending because they believe they can spend more now because their available resources will grow later. Even with higher yd, consumers may cut back their spending now if they believe that future times will be lean. If expected future income is fairly close to current income, maybe growing slowly, then we can probably say that the portion of yd spent will stay fairly stable over time.

Related Questions

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

Given the following information for the Macro Economy answer the following questions.

In this economy we have an MPC equal to 0.80, Autonomous Consumption of $600 billion, Planned Investment (I) of $1,000 billion, Government Spending (G) of $1,200 billion and Net Taxes (T) of $1,000 billion.

a) Fill in the missing data for: T, Yd, C, S, and AE (in that order in a table) for every level of Y given below (all the numbers are in billions).

Income (Y) Net Taxes (T) Disposable Income (Yd) Consumption (C) Savings (S) Aggregate Expenditures (AE)
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000

b) Determine the Equilibrium level of Aggregate Income (Ye). Please state the reason for your answer.

c) Calculate the Spending Multiplier (show how you got your answer).

d) State in one sentence what your answer in (c) above tells us about any decrease in spending that takes place in the economy.

e) If this economy had a full employment level of income equal to $8,000 billion, what Macroeconomic condition is this economy experiencing.

f) Using the Spending Multiplier, determine the change in G that is needed to get this economy to be in equilibrium at full employment. Please show your work.

g) Using the Spending Multiplier, determine the change in T that is needed to get this economy to be in equilibrium at full employment. Please show your work.

cerisesnake32

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

ECON1102 Lecture Notes - Lecture 9: Macroeconomic Model, Disposable And Discretionary Income, Ceteris Paribus

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