1.     Assume a private, closed economy where Y = C + I, and C = 10 + 0.9Y and   I = 15. (Values in $ billions.)

1. Solve algebraically for the equilibrium level of national income.
2. Calculate the value of the multiplier.
3. Solve graphically for the equilibrium income by constructing an accurate

i) The 45 degree graph   

ii) savings/investment graph

2. Now add the government sector to the model so that Y = C + I + G where C = 10 + 0.9[Y – T] , I = 15, G = 25, T = Ta + tY = 5 + 0.10Y.  

   

a)         Solve for the new equilibrium level of national income.   

b)         Calculate the size of the

i) new multiplier

                        ii) budget balance   

3. Now add the foreign sector to the model so that Y = C + I + G + [ X - M ] where the new variables are: X = Xa = 40, and M = Ma + mY = 5 + 0.11Y.    The other variables remain the same as in question 2.

1. Solve for the new equilibrium level of national income.
2. Calculate the size of the

i)   New multiplier   

            ii) Trade balance  

iii) Budget balance

4. Assume the full employment level of national income (YF ) is at $280 billion. In order to reach YF from the existing equilibrium income level in ( 3 ) above, calculate the required changes, ceteris paribus, in

a)         Government spending ( G )

b)         Autonomous taxes ( Ta )

c)         The tax rate (t)   

Answer rating: 100% (QA)

Given the equations Y C I C 10 09Y I 15 G 25 T Ta 010Y X Xa 40 M Ma 011Y YF 280 billion 1 Solve alge... View the full answer