Use the Keynesian Model to answer the next few questions.
Y = C + I
C = a + b(Y – T)
I = autonomously given
T = 0
Question 1: If C = $200 and I = $100, then Y must equal _______. If the value of a + $100, then the MPC must be equal to _________. The slope of the consumption function is _________. The marginal propensity to save is ________. Saving equals _________ in equilibrium.
Question 2: Suppose a = $100, MPC = .8, and I = $50. Fill in the following table. There are no taxes.
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Y
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C
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S
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I
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C + I
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Inventory change
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Direction of Change in Y
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100
|
|
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50
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|
|
|
|
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204
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-74
|
|
|
|
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500
|
|
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Increase
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|
|
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30
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50
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670
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-20
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|
|
|
724
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|
|
|
|
|
The equilibrium level of real GDP is _______.
Question 3: Suppose the MPC = .5 and the autonomous level of consumption increases by $200. Fill in the following table showing the multiplier effect.
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Round
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Change in Y
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Change in C
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Change in S
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1
2
3
4
5
...
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|
|
|
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Total
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|
|
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What is the multiplier? _________
Use the following Keynesian Model to answer the next few questions.
Y = C + I + G + (X – M)
C = a + b(Y – T)
I, G, (X – M), and T are all autonomously given
Question 4: If C = $200, I = $100, G =$100, (X – M) = $50, then Y must be equal to _______.
If the value of autonomous consumption is zero and T = $50, then the MPC must be equal to ________. The marginal propensity to save is ________. Saving is equal to __________ in equilibrium.
Question 5: Suppose Y is initially at $500. But suppose the full employment level of Y is $1000. If the MPS = .5, how much would the increase in government spending have to be in order to move the economy to the full employment level of Y?
Question 6: Instead of a change in government spending as in problem 5, suppose the government implements a change in taxes in order to move the economy to the full employment level of output. What will be the change in taxes necessary to move this economy to full employment?