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Hakan Yetkiner
http://www.hakanyetkiner.com
Izmir University of Economics
Department of Economics
ECON 202
MACROECONOMIC THEORY
Dr. Yetkiner
21 March 2013
Key to Exercise 03
The Simple Keynesian Multiplier
( ),
1. Suppose that the following information is given for an economy:
,
,
,
,
. Find the equilibrium GDP, the multiplier,
equilibrium consumption and equilibrium disposable income.
(
The multiplier is 4. Not 0.25!
)
;
.
2. Suppose now that investment increases to
(
Find the new equilibrium GDP, the new multiplier, etc.
) in the previous question.
There are two methods to solve this problem. First, one may substitute respective values of
all variables as done above and find the new equilibrium values of all unknowns. Second,
one may use the change in equilibrium via using the multiplier and the change in
investment and next find the new value.
Hence, if we follow the second option,
Hence, the new value of Y increased by 40, that is, it is now
rest can be found easily.
. The
Important Remark: One must note that there is no change in the multiplier in this exercise.
In some questions, the multiplier itself may be subject to change. In that case, the solution
procedure would be a bit complicated.
( ),
3. Suppose that the following information is given for an economy:
,
,
,
,
. Find the equilibrium GDP, the
multiplier, equilibrium consumption, equilibrium tax and equilibrium disposable income.
(
)
1
Hakan Yetkiner
http://www.hakanyetkiner.com
The multiplier is 3.07.
.
Izmir University of Economics
Department of Economics
;
,.
. Notably, there is budget surplus:
4. Suppose that equilibrium income of an economy is
( ),
,
,
,
,
and
.
(
)
2
. Given that
, for an economy, find
̅