**I HAVE THE ANSWERS, I AM CURIOUS HOW TO FIND THE ANSWERS AND WHAT EACH OF THES

Question

**I HAVE THE ANSWERS, I AM CURIOUS HOW TO FIND THE ANSWERS AND WHAT EACH OF THESE SYMBOLS STANDS FOR***

1. (c)    2. (d)   3. (a)

Use the following information about a Keynesian model to answer questions 1-3.

A = 200           MPC = 0.9      I = 150            X = 100           M = 150

G = 160           TR = 200         t = 0.3

1. Equilibrium output is roughly

(a) 1016           (b) 1175          (c) 1730           (d) 1784

2. The multiplier is roughly

(a) 1.39            (b) 1.59           (c) 2.39            (d) 2.70

3. The budget surplus (defined as tax revenue minus government spending, or (tY – G – TR)) is roughly

(a) 159             (b) 175            (b) 179            (d) 195

Explanation / Answer

Y = equillibrium income/output, C - consumption expenditure, i - investment expenditure, G - government expenditure, X - exports, M - imports and A - autonomous expenditure

1) Y = A + C + I + G + X - M

Y = 200 + MPC x (1 - t) x Y + 150 + 160 + 100 - 150

Y = 460 + 0.63Y

Y = 460/0.37 = 1243.2

2) Option d is correct

Multiplier = 1/(1 - MPC x (1 - t)) = 1/(1 - 0.9 x 0.7) = 2.7

3) Budget surplus = tY - G - TR = 0.3 x 1243.2 - 160 - 200 = 13

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