Download Econ 102 SI

Econ 102 SI
Chapter 11 Revision
04/09/08
Questions
1. Use the following information to answer the next questions
Y=C+I+G
C=125+0.75(Y-T)
I=200-10r
G=150
T=100
a. Calculate the various levels of planned Investment and Equilibrium level of Income that match
the following interest rates given on the table below
Interest Rate (%)
Planned investment
Equilibrium level of Income
0
5
10
100
1200
15
20
b. Draw an investment curve as related to real interest rate
c. Plot a graph that shows the relationship between r and Y
2. Given the following information on an economy (all numbers are in billion dollars):
C=125+0.75(Y-T)
I=200-10r
G=150
T=100
a. Calculate I and equilibrium Y at r=10
b. Suppose that government purchases increase by $1 billion to $151 billion while other variables
stay constant. By how much does Y (equilibrium level of output) change? What is the new
equilibrium level of output
c. Draw a planned expenditure graph and IS graph to show the change in G and Y
d. Now assume that G=150 and all other variables are at their original numbers. If T increase by $1
billion to $101 billion by how much does Y change. What is the new Y.
e. Draw a planned expenditure graph and IS graph to show the change in T and Y
Use the following information to answer the next two questions. The consumption function of consumers in an
economy is C=100+0.8(Y-T)
3. What is the government purchases multiplier
a. 0.8
b. 1.25
c. 4
d. 5
4. If taxes decrease by $1, the equilibrium level of income will
a. Decrease by $5
b. Decrease by $4
c. Increase by $5
d. Increase by $4
5. If both taxes and government purchases increase by $1, the equilibrium level of income will
a. Remain constant
b. Increase by $3
c. Increase by $1
d. Decrease by $4