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    Tutorial 5

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    scarletmbaly
    This document provides information and questions for a tutorial on the Keynesian model. It includes data on consumption, investment, government spending, taxes, exports, and imports for various economies. It asks the reader to calculate autonomous expenditure, equilibrium income levels, expenditure multipliers, and to graph consumption, net export, and total spending functions to show the impact of changes in taxes, government spending, investment on equilibrium income. It also asks the reader to explain why the MPC is always less than one.

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    Tutorial 5

    Uploaded by

    scarletmbaly
    6 views3 pages
    This document provides information and questions for a tutorial on the Keynesian model. It includes data on consumption, investment, government spending, taxes, exports, and imports for various economies. It asks the reader to calculate autonomous expenditure, equilibrium income levels, expenditure multipliers, and to graph consumption, net export, and total spending functions to show the impact of changes in taxes, government spending, investment on equilibrium income. It also asks the reader to explain why the MPC is always less than one.

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    This document provides information and questions for a tutorial on the Keynesian model. It includes data on consumption, investment, government spending, taxes, exports, and imports for various economies. It asks the reader to calculate autonomous expenditure, equilibrium income levels, expenditure multipliers, and to graph consumption, net export, and total spending functions to show the impact of changes in taxes, government spending, investment on equilibrium income. It also asks the reader to explain why the MPC is always less than one.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    6 views3 pages

    Tutorial 5

    Uploaded by

    scarletmbaly
    This document provides information and questions for a tutorial on the Keynesian model. It includes data on consumption, investment, government spending, taxes, exports, and imports for various economies. It asks the reader to calculate autonomous expenditure, equilibrium income levels, expenditure multipliers, and to graph consumption, net export, and total spending functions to show the impact of changes in taxes, government spending, investment on equilibrium income. It also asks the reader to explain why the MPC is always less than one.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    TUTORIAL 4 4 September 2023 EECF1624/5 EFEC2624

    QUESTION 1
    Assume that:
    S = -200 + 0.10Yd
    I = 300
    G = 150
    X = 140
    M = 150 + 0.1Y
    t = 20%

    1.1 Write down the net export (NX) as a function of income (Y) and calculate the level of
    income when exports equal imports.
    1.2 Draw the net export graph and label it clearly.
    1.3 List two variables that will affect the position of the net export line.
    1.4 Calculate the total-spending function and equilibrium level of income.
    1.5 Calculate the expenditure multiplier.
    1.6 Suppose the government of this economy embarks on a discretionary fiscal policy and
    rises its spending by 100. Graphically show, using the Keynesian model, the impact of
    this action on autonomous expenditure and equilibrium income.

    QUESTION 2
    2.1 If the economy operates at 10 000m but 8 000m is regarded as full employment, then the
    most appropriate action for the government would be to
    A. increase indirect taxes.
    B. decrease direct taxes.
    C. increase government spending.
    D. not act at all.

    2.2 Assume S = -200 + 0.8Y; M = 0.1Y; I = 300; G = 150 and X = 250. Then an increase in
    investment by 50 will lead to a new equilibrium level of income of
    A. 950.56.
    B. 1000.56.
    C. 1055.56.
    D. 1155.56.

    2.3 Assume that an economy's real GDP multiplier is 2 and that this economy is in equilibrium
    at R500 billion. If the government wants to move this economy to full-employment at
    R600 billion, while maintaining a balanced budget, it must choose which of the following
    options?
    A. Increase government spending and taxes by R100 billion
    B. Decrease government spending and taxes by R100 billion
    C. Increase government spending and taxes by R200 billion
    D. Decrease government spending and taxes by R200 billion
    TUTORIAL 4 4 September 2023 EECF1624/5 EFEC2624

    2.4 Given full-employment output = R2,800, equilibrium output = R2,500, and MPS = 0.25,
    which of the following changes would most likely bring the economy to a full-employment
    level of national output?
    A. R300 decrease in taxes.
    B. R75 increase in government spending.
    C. R75 decrease in taxes.
    D. R300 increase in government spending.
    E. R75 decrease in government spending.

    2.5 If MPC = 0.80, how much should government spending change to increase real GDP by
    R500?
    A. -100.
    B. +80.
    C. -80.
    D. +500.
    E. +100.

    2.6 If MPC = 0.9, equilibrium real GDP is R1,000, and full-employment real GDP is R2,000, then
    how much should government spending change to bring about full employment?
    A. +1,000.
    B. -100.
    C. +900.
    D. +100.
    E. -0.9.

    QUESTION 3
    In a Keynesian model, Utopia is an open economy. Use the following information and
    answer the questions.

    Data
    Auto consumption R150 Million
    Investment expenditure R200 Million
    Government expenditure R300 Million
    Tax rate 20%
    Auto Exports R150 Million
    Auto Imports R20 Million
    MPC 0.7

    3.1 Calculate (Show all calculations)


     Autonomous Expenditure
     The expenditure multiplier
     The equilibrium level of income
    TUTORIAL 4 4 September 2023 EECF1624/5 EFEC2624

    3.2 Plot a graph showing the consumption function, net export function, total spending and
    equilibrium income.
    3.3 Show how a decrease in the proportional tax rate from 20% to 15% will change the
    graph in 4.2. Do not redraw the graph; only indicate the possible change on the graph

    QUESTION 4
    Given the following Keynesian model:
    C = 80 + 0.75Yd
    T = 0.20Y
    I = 250
    G = 100
    X = 200
    Z = 0.30Y

    4.1 Calculate the equilibrium level of income and indicate the value of the current account
    balance when the economy is at its equilibrium income level.
    4.2 Suppose that all equations in the model above stay the same except the size of exports.
    Calculate the level of exports needed to yield an equilibrium income level that also
    has X=M, and indicate that resulting equilibrium income level.
    4.3 If net exports increase by 250 and the mpc is 0.75, equilibrium aggregate output
    increases by _____.
    4.4 Why is the MPC always less than one?

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