Real GDP Consumption Planned Investment Government Purchases Net Exports Aggrega
ID: 1111896 • Letter: R
Question
Real GDP
Consumption
Planned Investment
Government Purchases
Net Exports
Aggregate Expenditure
$4,000
$3,500
$350
$450
-$100
5,000
4,300
350
450
-100
6,000
5,100
350
450
-100
7,000
5,900
350
450
-100
Q3. Using the table above, answer the following questions. The numbers in the table are in billions of dollars.
Fill out the table and find the equilibrium GDP. (2pts)
Compute the MPC and the MPS. Show your work. (2pt)
Suppose that real GDP is $7,000. Explain what will happen to unplanned change in inventories if the economy is operating at this level of real GDP (= $7,000). What signal does this send to firms? Briefly explain. (2pts)
Q4. Consider the following data for a closed economy:
Y = $12 trillion; C = $8 trillion; I= $2 trillion; G = $2 trillion; TR = $2 trillion; T = $3 trillion
Based on the information above, what is the level of private saving in the economy? Show your work. (2pts)
Based on the information above, what is the level of public saving? Show your work. (2pts)
Based on the information above, is there the government budget deficit or surplus? Briefly explain. (1pt)
Real GDP
Consumption
Planned Investment
Government Purchases
Net Exports
Aggregate Expenditure
$4,000
$3,500
$350
$450
-$100
5,000
4,300
350
450
-100
6,000
5,100
350
450
-100
7,000
5,900
350
450
-100
Explanation / Answer
Q3 Use the fact that AE = C + I + G + NX
Fill out the table and find the equilibrium GDP.
See the table and find that Y = AE = 5000 is the equilibrium GDP.
Compute the MPC and the MPS.
For a regular 1000 increase in Y, consumption rises by 800. Hence MPC is 800/1000 = 0.8. Since MPC is 0.8, MPS = 1 - MPC = 1 - 0.8 = 0.2
Suppose that real GDP is $7,000. This implies that real GDP greater than AE and so AE falls short of actual GDP. Hence all the unplanned inventories will pile up and this discourages firms from carry out production. They therefore stop production to sell the inventories first.
Q4. Consider the following data for a closed economy:
Y = $12 trillion; C = $8 trillion; I= $2 trillion; G = $2 trillion; TR = $2 trillion; T = $3 trillion
Based on the information above, what is the level of private saving in the economy? Show your work. (2pts)
Based on the information above, what is the level of public saving? Show your work. (2pts)
Based on the information above, is there the government budget deficit or surplus? Briefly explain. (1pt)
Q4. Consider the following data for a closed economy:
Y = $12 trillion; C = $8 trillion; I= $2 trillion; G = $2 trillion; TR = $2 trillion; T = $3 trillion
Private saving = Disposable income - consumption = Y - T + TR - C = 12 - 3 + 2 - 8 = $3 trillion
Public saving = T - TR - G = 3 - 2 - 2 = $-1 trillion
Based on the information above, there is the government budget deficit of $1 trillion.
Real GDP Consumption Planned Investment Government Purchases Net Exports Aggregate Expenditure 4,000 3500 350 450 -100 4200 5000 4300 350 450 -100 5000 6000 5100 350 450 -100 5800 7000 5900 350 450 -100 6600Related Questions
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