Assignment File is Attached Document Preview: Aggregate Expenditures Model Exam #3, Part II Q(Y) T Yd C S I G Xn AE INV ECO 0 300 XX XX XX 225 300 -25 XX XX XX 500 1000 2000 2500 1. Complete the table (rows 3-6). Consumption function is: C= 300 +.75Yd. 2. Solve for equilibrium algebraically. Place the equilibrium level of income in column 1, row 7, and solve across to prove that the value you solved for algebraically is correct. 3. What is the mpc? What is the mps? 4. What is the value of the budget deficit? 5. Why isnt an output level of 2000 equilibrium? Be specific with regards to changes in unplanned inventories. 6. Why isnt an output level of 2500 equilibrium? Be specific with regards to changes in unplanned inventories. 7. Suppose full employment (FE) is 2800. What is the type and value of the gap? 8. Why did Keynes argue that the economy would remain stuck in this gap? 9. What is the value of the investment multiplier? Use the investment multiplier to restore the economy to full employment. Fill in row 8. 10. Why would Keynes oppose using the investment multiplier to restore the economy to full employment? 11. What is the value of the government multiplier? Use the government multiplier to restore the economy to full employment. Fill in row 9. 12. Identify two criticisms of using the government multiplier. 13. What is the value of the tax multiplier? Use the tax multiplier to restore the economy to full employment. Fill in row 10. 14. Identify two criticisms of using the tax multiplier. 15. What is the value of the balanced budget multiplier? Use the balanced budget multiplier to restore the economy to full employment. Fill in row 11. 16. Identify two criticisms of using the balanced budget multiplier. 17. Draw the AD/AS graph and indicate equilibrium. Illustrate on the graph the impact of using expansionary fiscal policy to restore the economy to full employment. What happens to real GDP and the price level? 18. Is this new equilibrium consistent with long-run equilibrium? Why or why not? Attachments: Aggregate-Exp.pdf; Assignment File is Attached Document Preview: Aggregate Expenditures Model Exam #3, Part II Q(Y) T Yd C S I G Xn AE INV ECO 0 300 XX XX XX 225 300 -25 XX XX XX 500 1000 2000 2500 1. Complete the table (rows 3-6). Consumption function is: C= 300 +.75Yd. 2. Solve for equilibrium algebraically. Place the equilibrium level of income in column 1, row 7, and solve across to prove that the value you solved for algebraically is correct. 3. What is the mpc? What is the mps? 4. What is the value of the budget deficit? 5. Why isnt an output level of 2000 equilibrium? Be specific with regards to changes in unplanned inventories. 6. Why isnt an output level of 2500 equilibrium? Be specific with regards to changes in unplanned inventories. 7. Suppose full employment (FE) is 2800. What is the type and value of the gap? 8. Why did Keynes argue that the economy would remain stuck in this gap? 9. What is the value of the investment multiplier? Use the investment multiplier to restore the economy to full employment. Fill in row 8. 10. Why would Keynes oppose using the investment multiplier to restore the economy to full employment? 11. What is the value of the government multiplier? Use the government multiplier to restore the economy to full employment. Fill in row 9. 12. Identify two criticisms of using the government multiplier. 13. What is the value of the tax multiplier? Use the tax multiplier to restore the economy to full employment. Fill in row 10. 14. Identify two criticisms of using the tax multiplier. 15. What is the value of the balanced budget multiplier? Use the balanced budget multiplier to restore the economy to full employment. Fill in row 11. 16. Identify two criticisms of using the balanced budget multiplier. 17. Draw the AD/AS graph and indicate equilibrium. Illustrate on the graph the impact of using expansionary fiscal policy to restore the economy to full employment. What happens to real GDP and the price level? 18. Is this new equilibrium consistent with long-run equilibrium? Why or why not? Attachments: Aggregate-Exp.pdf
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