Exam 22: Adding Government and Trade to the Simple Macro Model

The diagram below shows desired aggregate expenditure for a hypothetical economy. Assume the following features of this economy: · marginal propensity to consume mpc) = 0.75 · net tax rate t) = 0.20 · no foreign trade · fixed price level · all expenditure and income figures are in billions of dollars. FIGURE 22-2 -Consider the following news headline: ʺFinance minister announces that the federal income -tax rate will rise by three percentage points.ʺ Assuming that aggregate output is demand -determined, what will be the effect of this action, all other things equal, on the AE function and equilibrium national income?

A decrease in domestic national income will cause a the net exports NX) function.

Consider a simple macro model with a constant price level and demand-determined output. The equations of the model are: C = 120 + 0.86Y, I = 300, G = 520, T = 0, X = 180, IM = 0.12Y. Total autonomous spending in this model is

Consider the governmentʹs budget balance. Suppose G = 400 and the governmentʹs net tax revenue is 20% of national income Y). Government saving is negative for all values of Y

In our simple macro model with government, which statement is correct regarding the following equation: T = 0)2)Y?

In a simple macro model with a constant price level, an increase in the net tax rate causes the AE curve to

Consider the governmentʹs budget balance. Suppose G = 2500 and the governmentʹs net tax revenue is equal to 0.2Y. The government budget is balanced when Y equals

Consider a simple macro model with demand-determined output and the following specific parameter values: A. Marginal propensity to consume out of disposable income = 0.6 B. Marginal propensity to consume out of national income = 0.48 C. Marginal propensity to import = 0.23 The simple multiplier without government and foreign trade in this economy is and the simple multiplier with government and foreign trade in this economy is .

The diagram below shows desired aggregate expenditure for a hypothetical economy. Assume the following features of this economy: · marginal propensity to consume mpc) = 0.75 · net tax rate t) = 0.20 · no foreign trade · fixed price level · all expenditure and income figures are in billions of dollars. FIGURE 22-2 -Refer to Figure 22-2. What is the equilibrium national income in this economy?

Consider a simple macro model with a constant price level and demand-determined output. The equations of the model are: C = 120 + 0.86Y, I = 300, G = 520, T = 0, X = 180, IM = 0.12Y. The vertical intercept of the AE function is

Suppose that the marginal propensity to consume out of disposable income is 0.6 and the marginal propensity to import is 0.14. If the net tax rate is 0.1, then what is the marginal propensity to spend in this economy?

Consider the general form of the consumption function in a simple macro model. Once government and taxes are included in the model, desired consumption can be expressed as , where a = autonomous consumption, t = net tax rate, Y = national income, YD = disposable income, and MPC = marginal propensity to consume.

Exports are treated as autonomous expenditure in our simple macro model because

The diagrams below show the import, export, and net export functions for an economy. FIGURE 22-1 -Refer to Figure 22-1. The net export function for this economy can be expressed as

When determining the AE function for an open economy with government, it is generally assumed that as real national income

An increase in foreign income, other things being equal, is assumed to cause the net export NX) function to

Governmentʹs transfer payments to individuals affect desired aggregate expenditure

FIGURE 22-4 -Refer to Figure 22-4. The rotation from AE1 to AE0 could be caused by

The diagram below shows desired aggregate expenditure for a hypothetical economy. Assume the following features of this economy: · marginal propensity to consume mpc) = 0.75 · net tax rate t) = 0.20 · no foreign trade · fixed price level · all expenditure and income figures are in billions of dollars. FIGURE 22-2 -Consider the following news headline: ʺCanadian exporters hurt by foreign recession.ʺ Assuming that aggregate output is demand-determined, what effect will this have, all other things equal, on the AE function and on equilibrium national income?

The diagram below shows desired aggregate expenditure for a hypothetical economy. Assume the following features of this economy: · marginal propensity to consume mpc) = 0.80 · net tax rate t) = 0.15 · no foreign trade · fixed price level · all expenditure and income figures are in billions of dollars. FIGURE 22-3 -Refer to Figure 22-3. What is total autonomous expenditure?