Economics and National Income free essay sample

Consumption (Cd) (? n) |40 |70 |100 |130 |160 |190 |220 | |Injections (J) (? bn) |20 |20 | 20 | 20 | 20 | 20 | 20 | |Withdrawals (W) (? bn) | 0 |10 | 20 | 30 | 40 | 50 | 60 | |Aggregate expenditure (E) (? bn) |60 |90 |120 |150 |180 |210 |240 | b)Calculate the marginal propensity to consume domestically produced goods (mpcd). (Cd / (Y = ? 30bn / ? 40bn = ? or 0. 75 (c)On the diagram below, label the line shown and then plot Cd , J and aggregate expenditure (E) against national income (Y). [pic] (d)What will be the equilibrium level of income (where E = Y) 120bn (f)What are withdrawals and injections at this level of income? W †¦. ?20bn J ? 20bn (g)Plot the withdrawals line on the diagram. See diagram. You should now be able to see that there are two ways of finding the equilibrium level of national income. . In a closed economy (i. e. one that does not engage in foreign trade), spending on consumer goods is related to national income by the following schedule: |Y (? bn) | 0 |20 |40 |60 |80 |100 |120 |140 |160 |180 | |Cd (? bn) | 4 |20 |36 |52 |68 | 84 |100 |116 |132 |148 | |J (? bn) |20 |20 |20 |20 |20 | 20 | 20 | 20 | 20 | 20 | |E (? n) |24 |40 |56 |72 |88 |104 |120 |136 |152 |168 | If firms are investing at a rate of ? 8n per year and the government is spending ? 12n per year: (a)Fill in the figures in the table for total injections (J) and aggregate expenditure (E). We will write a custom essay sample on Economics and National Income or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page (b)What is the equilibrium level of national income 120bn (c)What is the mpcd? 4/5 or 0. 8 (d)What is the value of the expenditure multiplier? 5 (e)Suppose that full employment yields a national income of ? 40bn per annum, by how much must government expenditure be changed to reach full-employment income? Raised by ? 4bn (with a multiplier of 5, this will lead to the required rise in national income of ? 20bn) (f)Does the initial equilibrium situation represent an inflationary or a deflationary gap, and what is the size of this gap? Deflationary gap. The size of the gap is ? 4bn. (g)Now assume that the government wishes to close this gap by changing taxes. By how much must taxes be initially raised or lowered. Explain your answer. Taxes must be lowered by ? 5bn. The reason is that one fifth of any tax cut will be withdrawn into saving, additional taxes and expenditure on imports (mpw = 1/5). Thus only 4/5 of the tax cut (= ? 4bn) will result in extra consumption of domestically produced goods and services. This will then lead to a multiplied raise in national income of ? 20bn. 4. Examine the following diagram: Identify the correct letters for each of the following (circle the correct answer): (a)Equilibrium national income (i) Oa (ii) Ob (iii) Od (iv) Of (b)Injections at income Oa(i) aq (ii) ah (iii) hq (iv) qa(hq c)Withdrawals at income Of(i) tf (ii) nt (iii) mt (iv) mn (d)mpcd (i) ur/su (ii) su/ur (iii) mt/tl (iv) tr/tv (e)The amount that withdrawals rise when national income rises from Od to Of (i) tn (ii) nm (iii) tm (iv) ln (v) lm (f)mpw(i) tn/df (ii) nm/df (iii) df/tn (iv) df/nm (g)The multiplier(i) tn/df (ii) nm/df (iii) df/tn (iv) df/nm ECONOMICS Short-run Macro Equilibrium Short-run Macro Equilibrium Answers to Workshop 12 John Slo man Answers to Workshop 12 Short-run Macroeconomic Equilibrium Answers to Workshop 12 Short-run Macro Equilibrium Answers to Workshop 12 [pic]