Data for 9-4 Homework: Problem Set GDP Taxes DI C I G C+I+G 1250 200 800 300 200
ID: 1188475 • Letter: D
Question
Data for 9-4 Homework: Problem Set
GDP
Taxes
DI
C
I
G
C+I+G
1250
200
800
300
200
1500
200
1000
300
200
1750
200
1200
300
200
2000
200
1400
300
200
2250
200
1600
300
200
2500
200
1800
300
200
2750
200
2000
300
200
This table represents several different potential output scenarios for a hypothetical economy. Based on the information presented, complete the following:
1. Calculate the Disposable Income (DI) at each level of GDP.
2. Calculate total spending (C+I+G) at each level of GDP.
3. What is the equilibrium level of GDP in the economy?
4. When the economy is at equilibrium, what is the level of saving?
5. What is the value of the MPC?
6. What is the value of the expenditure multiplier?
7. What is the value of the tax multiplier?
8. If the government increases spending by $100, what would be the new equilibrium value of GDP?
9. If the government wanted to achieve the same change in GDP as in part 8 by cutting taxes instead of increasing spending, how large would the tax cut need to be?
GDP
Taxes
DI
C
I
G
C+I+G
1250
200
800
300
200
1500
200
1000
300
200
1750
200
1200
300
200
2000
200
1400
300
200
2250
200
1600
300
200
2500
200
1800
300
200
2750
200
2000
300
200
Explanation / Answer
This should answer parts 1 and 2
For Part 3
Equilibrium level of economy is when GDP equals the total spending which here is the level at which GDP = 1500, taxes = 200, C = 1000, I = 300 and G = 200 (second last row)
Part 4
The level of savings = Y - C - G = 1500-300-200 = 1000
Part 5
MPC = marginal increase in consumer spending / marginal increase in GDP = 200/(1500-1250) = 0.8
Part 6
Expenditure Multiplier = 1/(1-MPC) = 5
Part 7
Tax Multiplier = -MPC * 1/MPS = -0.8*1/0.2 = -4
Part 8
New equilibrium is row 4 when GPD = spending = 2000.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.