Explore BrainMass
Share

Spending by Individuals, Firms, and Governments

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

Given the following variable in the open economy aggregate expenditure model, autonomous consumption (C0) = 200, autonomous investment (I0) =200, government spending (G0) = 100, export spending (X0) = 100, autonomous import spending (M0) = 100, taxes (T) = 0, marginal propensity to consume (c1) = 0.8, marginal propensity to invest (i1) = 0.1, and marginal propensity to import (m1) = 0.15,

a.Calculate the equilibrium level of income for the open economy aggregate expenditure model.

b.If there is an increase in autonomous import expenditure from 100 to 200 resulting from an increase in the currency exchange rate, calculate the new equilibrium level of income and the value of the multiplier.

c.Compared with the original equilibrium in part a, if the government decides to impose taxes (T) of 100, calculate the new equilibrium level of income.

© BrainMass Inc. brainmass.com October 25, 2018, 1:32 am ad1c9bdddf
https://brainmass.com/economics/expenditure-multipliers/spending-by-individuals-firms-and-governments-266185

Solution Preview

a. First we need to write the equation for calculating expenditure. Say the real GDP is Y, then we know that

Y = C + I + G + X - M

We now need to specify each component:

C = C0 + MPC * (Y - T), since consumption is equal to autonomous consumption plus MPC * Disposable Income.
I = I0 + MPI * (Y - T)
G = ...

Solution Summary

Equilibrium expenditure is figured.

$2.19
See Also This Related BrainMass Solution

Concept of the Macro Economy

Here is what I need to get "smart" on:

I need to discuss the concept of the macro economy. Specifically:

1. How do we define the total value of economic output and how do we measure it?
2. What are the major performance goals that we set for the economy, and how do we measure the performance?
3. Finally, discuss (in depth) the concept of macro economic equilibrium in terms of injections and withdrawals from the circular flow of wealth and in terms of aggregate demand and aggregate supply.

If you could explain these things with a bit of detail, but in reasonably basic terms to the point where I might be able to get a fundamental understanding, I'm hoping that the textbook(s) will make more sense to me. I would certainly appreciate it.

I just need someone to take the time to explain this to me without telling me to "Read the book." I've already read the book.

View Full Posting Details