\n Econ303<\/p>\nHomework Assignment 5<\/p>\n
Fall 2014<\/p>\n
Due Thursday November 20<\/p>\n
Name:<\/p>\n
Section:<\/p>\n
1. Use the Keynesian cross to predict the impact on equilibrium GDP of the following. In each case,<\/p>\n
state the direction of the change and give a formula for the size of the impact.<\/p>\n
a. An increase in government purchases.<\/p>\n
b. An increase in taxes.<\/p>\n
c. Equal-sized increases in both government purchases and taxes.2. In the Keynesian cross, assume that the consumption function is given by C = 200 + 0.75 ( Y \u2013 T),<\/p>\n
planned investment is 100, and government purchases and taxes are both 100.<\/p>\n
a. Graph planned expenditure as a function of income.<\/p>\n
b. What is the equilibrium level of income?<\/p>\n
c. If government purchases increase to 125, what is the new equilibrium income?<\/p>\n
d. What level of government purchases is needed to achieve an increase in income of 1,600?3. In the development of the Keynesian cross in the textbook, we assumed that taxes are a fixed<\/p>\n
amount. Most countries, however, levy some taxes that rise automatically with national income.<\/p>\n
(Examples in the United States include the income tax and the payroll tax.) Let\u2019s represent the<\/p>\n
tax system by writing tax revenues as<\/p>\n
???? =????? +????????,<\/p>\n
where????? and t are parameters of the tax code. The parameter t is the marginal tax rate: if<\/p>\n
income rises by $1, taxes rise by t \u00d7 $1.<\/p>\n
a. How does this tax system change the way consumption responds to changes in GDP?<\/p>\n
b. In the Keynesian cross, how does this tax system alter the government-purchases<\/p>\n
multiplier?<\/p>\n
c. In the IS \u2013 LM model, how does this tax system alter the slope of the IS curve?4. The following equations describe an economy.<\/p>\n
???? =???? +???? +????.<\/p>\n
???? = 120 + 0.5(???? ?????).<\/p>\n
???? = 100 ? 10????.<\/p>\n
???? = 50.<\/p>\n
???? = 40.<\/p>\n
(<\/p>\n
????<\/p>\n
????<\/p>\n
)<\/p>\n
????<\/p>\n
=???? ? 20????.<\/p>\n
???? = 600.<\/p>\n
???? = 2.<\/p>\n
a. Identify each of the variables and briefly explain their meaning.b. From the above list, use the relevant set of equations to derive the IS curve. Graph the IS curve<\/p>\n
on an appropriately labeled graph.<\/p>\n
c. From the above list, use the relevant set of equations to derive the LM curve. Graph the LM<\/p>\n
curve on the same graph you used in part (b).<\/p>\n
d. What are the equilibrium levels of income and interest rate?5. According to the IS-LM model, what happens in the short run to the interest rate, income,<\/p>\n
consumption, and investment under the following circumstances? Be sure your answer includes<\/p>\n
an appropriate graph.<\/p>\n
a. The central bank increases the money supply.<\/p>\n
b. The government increases government purchases.c. The government increases taxes.<\/p>\n
d. The government increases government purchases and taxes by the same amount.<\/p>\n<\/fieldset>\n
<\/p>\n\nAttachments<\/legend>\n econ303-hw5-fall14.pdf<\/a> (397.03 KB)\u2026<\/i><\/p>\n<\/fieldset>\n","protected":false},"excerpt":{"rendered":" Econ303 Homework Assignment 5 Fall 2014 Due Thursday November 20 Name: Section: 1. Use the Keynesian cross to predict the impact on equilibrium GDP of the following. In each case, state the direction of the change and give a formula Read More …<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-77465","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/77465","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/comments?post=77465"}],"version-history":[{"count":0,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/77465\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/media?parent=77465"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/categories?post=77465"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/tags?post=77465"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}