Quiz 4 - practice quiz
1. Use the information below and the simple Keynesian model to answer the following questions.
|
Y
|
T - TR
|
C
|
G
|
I
|
X
|
M
|
S
|
Change in unplanned inventories
|
Direction of Change in real GDP
|
|
100
|
20
|
84
|
50
|
50
|
60
|
40
|
|
|
|
|
200
|
20
|
|
50
|
50
|
60
|
40
|
|
|
|
|
400
|
20
|
324
|
50
|
50
|
60
|
40
|
|
|
|
|
600
|
20
|
|
50
|
50
|
60
|
40
|
|
|
|
Y is real GDP; (T - TR) is net taxes; C is consumption spending; G is government spending; I is investment spending; X is spending on exports; M is spending on imports; and S is household saving.
a. Given the above information, find the consumption function with respect to disposable income, Y - (T - TR).
b. Fill in the missing values in the above table.
c. What is the equilibrium level of real GDP, Y, for this economy?
d. When this economy is in equilibrium, do leakages equal injections? Discuss your answer.
e. Suppose this economy is initially in equilibrium. Calculate the new equilibrium level of real GDP, Y', if government spending increases by $20 while everything else is held constant. Discuss your answer making sure to include the relationship between the change in real GDP and the change in government spending.