1. Consider the following consumption-savings schedule for a closed economy with no government. Income Consumption Saving...

 

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1. Consider the following consumption-savings schedule for a closed economy with no government. Income Consumption Saving 1000 500 500 1500 900 600 2000 1300 700 2500 1700 800 a. For each level of income, determine the APC, APS, MPC, and MPS. b. Calculate the spending multiplier. c. If investment increases by $200, then what is the resulting effect on total equilibrium income? Use the spending multiplier. d. Do this a different way: for this model, what must be true of savings and investment in equilibrium? Now, determine what must happen to savings when investment increases by $200. From the table, is the resulting effect on income the same? Assume now there is a government in the economy. e. If government spending increases by $200, what is the resulting effect on total equilibrium income? Use the spending multiplier. f. If the government decides instead to decrease taxes by $200, what is the resulting effect on total equilibrium income? Use the tax multiplier. g. Which is more effective, dollar for dollar, in inducing a change in income, increasing government spending or decreasing taxes? Explain the intuition. h. If the government decides to increase spending by $200, and finances this spending by increasing taxes by $200, what is the resulting effect on total equilibrium income? What does this imply as the so-called balanced budget multiplier? 1. Consider the following consumption-savings schedule for a closed economy with no government. Income Consumption Saving 1000 500 500 1500 900 600 2000 1300 700 2500 1700 800 a. For each level of income, determine the APC, APS, MPC, and MPS. b. Calculate the spending multiplier. c. If investment increases by $200, then what is the resulting effect on total equilibrium income? Use the spending multiplier. d. Do this a different way: for this model, what must be true of savings and investment in equilibrium? Now, determine what must happen to savings when investment increases by $200. From the table, is the resulting effect on income the same? Assume now there is a government in the economy. e. If government spending increases by $200, what is the resulting effect on total equilibrium income? Use the spending multiplier. f. If the government decides instead to decrease taxes by $200, what is the resulting effect on total equilibrium income? Use the tax multiplier. g. Which is more effective, dollar for dollar, in inducing a change in income, increasing government spending or decreasing taxes? Explain the intuition. h. If the government decides to increase spending by $200, and finances this spending by increasing taxes by $200, what is the resulting effect on total equilibrium income? What does this imply as the so-called balanced budget multiplier?