Consider the following aggregate expenditure model of canad

Assignment Help Microeconomics

Reference no: EM13680683

Consider the following aggregate expenditure model of the Canadian economy operating with givenwages and other factor prices, price level, interest rates, exchange rates, and expectations:
C = 50 + 0.8YD I = 400 G = 500 T = 0.3Y X = 650 IM = 0.36Y
where C is consumption (the 0.8 term represents the marginal propensity to consume) YD is disposable income, I is investment, G is government spending on goods and services, T is the total value of taxes net of transfers (the 0.3 term represents the net tax rate on national income), X is exports, and IM is imports
(the 0.36 term represents the marginal propensity to import).
(a) Solve for aggregate expenditures (AE) as a function of Y, and calculate the equilibrium level of national income. Illustrate your equilibrium in a diagram with AE on the vertical and Y on the horizontal axis. What is the value of the multiplier?
(b) Calculate the level of disposable income, consumption, private saving, government budget balance, and net exports at the equilibrium. Express the components of aggregate expenditure (C, I, G, and NX) as percentages of GDP (to one decimal place).
(c) Suppose that (due to the decrease in world oil prices) Canadian exports decrease by 100 from 650 to 550. What is the new level of GDP? Illustrate in your diagram. What is the effect on the government's budget balance? What happens to net exports? Can you explain why the change in net exports less than the decrease in exports?
(d) Now suppose that the government decides to use its spending power to restore national income to its original level. By how much must the government increase G to restore the original level of national income? What will happen to the government's budget balance? How do you explain the new level of the budget balance compared to that in part (c) and in part (b)?

Reference no: EM13680683

Questions Cloud

Monopoly and price fixing : Monopoly and Price Fixing

Compute the energy released in the explosion : A 2.82 kilogram projectile is fired with an initial speed of 119 meter per second at an angle of 31 degree with the horizontal. Compute the energy released in the explosion

Describe the typical consumer in that target market : You plan to market a new clothing line. Develop a hypothetical customer profile for each of the following possible target market segmentation approaches: unsegmented strategy, multisegment strategy, and single-segment strategy. For each approa..

Instituting the pollution tax : Who gains and who loses from instituting the pollution tax?

Consider the following aggregate expenditure model of canad : Consider the following aggregate expenditure model of the Canadian economy operating with givenwages and other factor prices, price level, interest rates, exchange rates, and expectations:

Obtain the magnitude of the force exerted by ladder on wall : A 12 meter long uniform ladder is leaning against a frictionless wall at an angle of 50o above the horizontal. The ladder has 30 kilogram mass. obtain the magnitude of the force exerted by ladder on wall

Compute what the internal resistance of the battery : The potential difference across the terminals of a battery is 8.7 Volt when there is a current of 1.53 Amp in the battery from the negative to the positive terminal. Compute the internal resistance of the battery

Find the angle between initial and final electron velocities : An electron is accelerated from rest by an electric field. After the acceleration, the electron is injected into a uniform magnetic field of 1.27 x 10-3 T. Find the angle between the initial and final electron velocities

President of the european central bank : Mario Draghi, President of the European Central Bank (ECB)

User Account

All Pages