1. Imagine an economy in which consumer expenditure is represented by the following equation:

C=50 + .75DI, where DI=Y-T

Imagine also that investors want to spend 500 at every level of Income(I=500), net exports are (X-IM=0), government purchases is 300 and taxes are 200.

a. What is the equilibrium level of income?
b. If the full employment level of income is 3,000, is there a recessionary or inflationary gap? If so, how much?
c. What will happen to the equilibrium level of income if investors become optimistic about the country's future and raise their investment to 600?
d. Is there a recessionary or inflationary gap now? How much?
e. Graph the results of d

Question 2

Fredonia has the following consumption function:
C=100+.8DI

Firms in Fredonia always invest $700 and net exports are zero, initially. The government budget is balanced with spending and taxes both equal to $500 each.

a. Find the equilibrium level of GDP
b. How much is saved? Is savings equal to investment
c. Now suppose that an export-promotion drive succeeds in raising net exports to $100. Answer (a) and (b) under these new circumstances

Solution Summary

The solution does a great job of answering the questions. The solution clearly explains the steps needed to get to an equilibrium level of GDP. It also talks about inflationary and recessionary gaps as well as unemployment. All the concepts are very well explained which makes it very easy for anyone with a basic understanding of economics to follow along. The attachment also contains a graph which makes it even easier to understand. Overall, an excellent response to the questions being asked.

The demand for a certain commodity is given by
D(x) = -50x + 800; that is, x units of the commodity will be demanded by consumers when the price is p = D(x) dollars per unit. Total consumerexpenditure E(x) is the amount of money consumers pay to buy x units of the commodity.
a) Express consumerexpenditure as a function

The national income and expenditure components for each level of the economy of Lala Land are given below.
What is the total expenditure at each level of income?
What is the equilibrium level of GDP?
What is the marginal propensity to consume?
Using the multiplier, if consumer spending autonomously increases by $200,

Explain how the aggregate expenditure function shifts in response to changes in each of the following variables:
a. The real interest rate increases.
b. Consumer confidence decreases.
c. Higher taxes are imposed on business profits.
d. The economies of many countries in the rest of the world go into recessions.

Let
U(x,y) = x * (y^2)
1. Derive the indirect utility function as a function of px, py and M, where px and py
are respectively the prices of the two goods x and y, and where M is the consumer's
income.
2. Now calculate the level consumption of both goods and the level of utility achieved
by this consumer if prices a

Explain the difference between expansionary monetary policy and contractionary monetary policy.
also,
Suppose when income is $10,000, aggregate expenditures are also $10,000. If income were hypothetically $0, aggregate expenditures would be $2,500.
a. At an income of $10,000, what are induced expenditures?
b. At an inc

An increase in the price level will
a. shift the aggregate expenditure function upward
b. shift the aggregate expenditure function downward
c. result in a movement upward along the aggregate expenditure function
d. result in a movement downward along the aggregate expenditure function
e. change the slope of the aggregate ex

Low Spending Is Taking Toll on Economy
For months, beleaguered American consumers have defied expert forecasts that they would soon succumb to the pressures of falling home prices, fewer jobs and shrinking paychecks. Now, they appear to have given in. On Wednesday, the Commerce Department reported that the economy continued t

The spreadsheet lists the components of aggregate planned expenditure in the United Kingdom. The numbers are in billions of pounds.
A B C D E F G
1 Y C I G X M
2 A 100 110 50 60 60 15
3 B 200 170 50 60 60 30
4 C 300 230 50 60 60 45
5 D 400 290 50 60 60 60
6 E 500 350 50 60 60 75
7 F 600 410 50