1. Expenditure within the Circular Flow diagram arises from each of the four sectors: Household Consumption, C, Producers Investment, I, Government Expenditure, G, and Net Exports, NX = X - IM.
Suppose an economy is described as follows (in $ Billions):
Autonomous Consumption, C = $25
Government Taxes, Τ = 0.54
Autonomous Government Expenditure, G = $420
Marginal Propensity to Consume, MPC = 0.87
Autonomous Investment Expenditure, I = $125
Exports, X = $475
Marginal Propensity to Import, MPIM = 0.37
a. Using the values provided above, determine and briefly explain the "Multiplier" for this economy.
b. Determine the level of GDP, Y, for this economy.
c. Determine the level of Disposable Income, Yd for households in this economy.
d. Determine the level of Imports in this economy AND explain whether this economy illustrates a trade surplus, balance, or deficit.
e. Determine the Government Budget Balance for this economy AND explain whether the Government is in deficit, balance, or surplus.
f. If the Government wanted to stimulate this economy, raising National Income, or GDP by $25 Billion, what would be the amount of change required in Government Autonomous Expenditure AND explain briefly WHY this amount is equal to, greater than, or less than the desired stimulus of $25 billion.
g. If the current "prime" lending rate is 2.0 percent, unemployment is 7.1 percent inflation is 1.75 percent, and the estimated growth of Real GDP is 1.4 percent, what would Canada's "MISERY INDEX" be? Explain briefly the intention and meaning in this "MISERY INDEX."