General Business 765, Lecture 3 Student Name_______________________
Spring 2001 Student ID Number ___________________
Answer to Homework #3
Due 3/28/01
1. (52 points) True or False Questions
a. False
b. True
c. True
d. True
e. False
f. True
g. False
h. False
i. False
j. False
k. False
l. True
m. True
n. True
o. False
p. True
q. True
r. True
s. True
t. True
u. True
v. False
w. True
x. True
y. True
z. False
2. (10 points) Fill in the table below using what you know about Keynesian Models. Assume taxes are autonomously given to you.
|
INCOME |
TAXES |
DISPOSABLE INCOME |
CONSUMPTION |
SAVING |
|
0 |
0 |
0 |
100 |
-100 |
|
100 |
0 |
100 |
150 |
-50 |
|
200 |
0 |
200 |
200 |
0 |
|
300 |
0 |
300 |
250 |
50 |
|
1000 |
0 |
1000 |
600 |
400 |
a. In the above example, autonomous consumption equals ___100________.
b. In the above example, the marginal propensity to consume equals _____.5_____.
c. The consumption function for the economy represented in the above table can be written as ________C = _100 + .5(Y – T)__________________________.
d. The saving function for the economy represented in the above table can be written as _________S = -100 + .5(Y – T)__________________________.
3. (12 points) Fill in the table below using what you know about Keynesian Models. Assume taxes are autonomously given to you.
|
INCOME |
TAXES |
DISPOSABLE INCOME |
CONSUMPTION |
SAVING |
|
0 |
20 |
-20 |
100 |
-120 |
|
200 |
20 |
180 |
260 |
-80 |
|
400 |
20 |
380 |
420 |
-40 |
|
800 |
20 |
780 |
740 |
40 |
|
2000 |
20 |
1980 |
1700 |
280 |
a. In the above example, autonomous consumption equals ____116_______.
b. In the above example, the marginal propensity to consume equals __.8________.
c. The consumption function for the economy represented in the above table can be written as _________C = 116 + .8(Y – T)___________________________.
d. The saving function for the economy represented in the above table can be written as _________S = -116 + .2(Y – T)___________________________.
4. (14 points) Fill in the table below using what you know about Keynesians Models. Assume taxes are a function of income: e.g., T = tY + w, where T is total taxes, Y is aggregate income, t is the marginal tax rate that is assumed to be constant and w is the autonomous level of taxes (thus, w is the amount of taxes that are paid when income equals 0).
|
INCOME |
TAXES |
DISPOSABLE INCOME |
CONSUMPTION |
SAVING |
|
0 |
10 |
-10 |
50 |
-60 |
|
100 |
20 |
80 |
95 |
-15 |
|
200 |
30 |
170 |
140 |
30 |
|
300 |
40 |
260 |
185 |
75 |
|
400 |
50 |
350 |
230 |
120 |
a. The marginal tax rate t equals ____.1_________.
b. The marginal propensity to spend with respect to disposable income equals _____.5_________.
c. The marginal propensity to spend with respect to aggregate income equals __.45______________.
d. The consumption function as a function of disposable income can be written as ___C = 55 + .5(Y – T)______ (make sure that your equation includes a C term as well as a (Y-T) term).
e. The consumption function as a function of income can be written as ___C = 50 + .45Y__ (make sure that your equation includes both a C term as well as a Y term).
5. (12 points) Fill in the table below using a Keynesian Model where aggregate expenditure equals consumption spending plus investment spending plus government spending. (All numbers in table are given in dollars.)
|
GDP OR INCOME |
100 |
200 |
400 |
1000 |
5000 |
10,000 |
320 |
|
CONSUMPTION SPENDING |
125 |
200 |
350 |
800 |
4000 |
7550 |
290 |
|
INVESTMENT SPENDING |
20 |
20 |
20 |
20 |
20 |
20 |
20 |
|
GOVERNMENT SPENDING |
10 |
10 |
10 |
10 |
10 |
10 |
10 |
|
AGGREGATE EXPENDITURE |
155 |
230 |
380 |
830 |
3780 |
7580 |
320 |
|
UNPLANNED INVENTORY CHANGES (provide a numerical answer here) |
Decrease (-55) |
Decrease (-30) |
Increase (20) |
Increase (170) |
Increase (1000) |
Increase (2420) |
No change |
|
DIRECTION OF CHANGE IN REAL NATIONAL INCOME |
Increase |
Increase |
Decrease |
Decrease |
Decrease |
Decrease |
No change |
a. The marginal propensity to save with respect to income is equal to ____.25_________.
b. The marginal propensity to consume with respect to income is equal to __.75_________.
c. In the last column of the table fill in the numbers for each variable for this economy when it produces the equilibrium level of GDP.
d. Sketch a graph illustrating the equilibrium you found in (d). In your graph label your lines clearly: indicate where C, I, and G are on your graph. Also make sure you label the equilibrium level of output on your graph as Ye.
(see Keynesian Cross Diagram where the equilibrium level of output is 320)