Section B (40 marks) Attempt all questions. Question 1 (15 marks) The economy of Melvis Pink...

Transcribed Image Text:

Section B (40 marks) Attempt all questions. Question 1 (15 marks) The economy of Melvis Pink in the early 1970's, was a simple closed economy rich in oil reserves and not much of anything else. The economic make-up of the country is given as (in billions of dollars): Autonomous consumption is $20 and Investment $5. The marginal propensity to consume is given as 0.5 Calculate the following with detailed workings [limit your answer to two decimal points]: a) The consumption function (2 marks) (3 marks) (3 marks) b) The aggregate expenditure function c) Equilibrium real expenditure d) The autonomous expenditure multiplier (3 marks) e) Suppose the economy experienced a rise in investment by $2 billion. Calculate the i. Change in real GDP (2 marks) ii. The new equilibrium level of output (2 marks) Question 2 (25 marks) Fast forward 50 years and Melvis Pink today boasts of a modern and expanding economy dependent on its exports of crude and natural gas. Its national income in 2013 was driven by the following indicators (all information is expressed in billions of dollars): Autonomous consumption $50, investment $40, government expenditure $50, autonomous taxes $10, exports $60, imports $40. A welfare state, the federal government handed out $20 billion in transfer payments in 2018. The marginal propensity to consume is 0.6. The income tax rate is 0.30. Calculate the following with detailed workings [limit your answer to two decimal points]: a) The consumption function (4 marks) (4 marks) (3 marks) b) The aggregate expenditure function c) Equilibrium real expenditure d) Aggregate Consumption (in billions of dollars) e) The autonomous expenditure multiplier 5 source was downloaded by 100000800982884 from CourseHero.com on 06-30-2023 11:42:35 GMT-05:00 (2 marks) (3 marks) w.coursehero.com/file/143209006/Macroeconomics-Take-Home-Final-Exam-Paper-ECN60204-MAR2020-cc20955fbd0223430ead19e78782f2bapdf/ f) The federal budget deficit/surplus (4 marks) g) Suppose the economy's potential real GDP is $300. Given the actual level of real GDP calculated in (c), what is the size of the economy's output gap? Indicate whether it is a recessionary gap or inflationary gap? (2 marks) h) Given the size of the output gap calculated in (g), recommend the amount of government expenditure that the government must spend in order to bring the economy back to full employment? (3 marks) Section B (40 marks) Attempt all questions. Question 1 (15 marks) The economy of Melvis Pink in the early 1970's, was a simple closed economy rich in oil reserves and not much of anything else. The economic make-up of the country is given as (in billions of dollars): Autonomous consumption is $20 and Investment $5. The marginal propensity to consume is given as 0.5 Calculate the following with detailed workings [limit your answer to two decimal points]: a) The consumption function (2 marks) (3 marks) (3 marks) b) The aggregate expenditure function c) Equilibrium real expenditure d) The autonomous expenditure multiplier (3 marks) e) Suppose the economy experienced a rise in investment by $2 billion. Calculate the i. Change in real GDP (2 marks) ii. The new equilibrium level of output (2 marks) Question 2 (25 marks) Fast forward 50 years and Melvis Pink today boasts of a modern and expanding economy dependent on its exports of crude and natural gas. Its national income in 2013 was driven by the following indicators (all information is expressed in billions of dollars): Autonomous consumption $50, investment $40, government expenditure $50, autonomous taxes $10, exports $60, imports $40. A welfare state, the federal government handed out $20 billion in transfer payments in 2018. The marginal propensity to consume is 0.6. The income tax rate is 0.30. Calculate the following with detailed workings [limit your answer to two decimal points]: a) The consumption function (4 marks) (4 marks) (3 marks) b) The aggregate expenditure function c) Equilibrium real expenditure d) Aggregate Consumption (in billions of dollars) e) The autonomous expenditure multiplier 5 source was downloaded by 100000800982884 from CourseHero.com on 06-30-2023 11:42:35 GMT-05:00 (2 marks) (3 marks) w.coursehero.com/file/143209006/Macroeconomics-Take-Home-Final-Exam-Paper-ECN60204-MAR2020-cc20955fbd0223430ead19e78782f2bapdf/ f) The federal budget deficit/surplus (4 marks) g) Suppose the economy's potential real GDP is $300. Given the actual level of real GDP calculated in (c), what is the size of the economy's output gap? Indicate whether it is a recessionary gap or inflationary gap? (2 marks) h) Given the size of the output gap calculated in (g), recommend the amount of government expenditure that the government must spend in order to bring the economy back to full employment? (3 marks)

Answer rating: 100% (QA)

1 a The consumption function The marginal propensity to consume MPC is given as 05 This means that for every additional dollar of income 05 dollars will be consumed The consumption function can be cal... View the full answer