Economic Equilibrium Analysis Quiz

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Questions and Answers

What is the final equilibrium income (Y) calculated from the equation provided?

675

1227.27 (correct)

900

1000

How is the disposable income (Yd) defined in the context of the equations?

Y + T

Y - T (correct)

Y + G

Y - G

When aggregate expenditure exceeds output, what is expected to happen to output?

Output will fluctuate randomly

Output will remain constant

Output will increase (correct)

Output will decrease

In the three-sector economy table, what happens at an output of 900?

The economy is in equilibrium Signup and view all the answers

What is the aggregate expenditure when income (Y) is 700?

750 Signup and view all the answers

How much is the government spending (G) in the calculations provided?

100 Signup and view all the answers

What kind of economic analysis is being performed in the content?

Macroeconomic analysis Signup and view all the answers

What is the intended purpose of the expenditure function’s upward displacement in the economic model?

To account for investment and government spending Signup and view all the answers

What is the formula for calculating the multiplier for lump sum taxes?

MPC / (1 - MPC) Signup and view all the answers

How is the change in equilibrium income calculated for a proportionate tax?

∆Y = -b x ∆T / (1 - b + bT) Signup and view all the answers

If the government increases spending by 50 million, what is the calculation for the change in equilibrium income given an MPC of 0.75?

∆Y = 400 million Signup and view all the answers

What will be the new national income equilibrium level after a reduction in tax from 200 million to 100 million if the initial equilibrium was 800 million?

987.5 million Signup and view all the answers

What is the correct approach to find the change in equilibrium income (∆Y) in a lump sum tax scenario?

∆Y = -b x ∆T / (1 - b) Signup and view all the answers

What occurs at the intersection of I+G schedule with S+T at RM875?

Equilibrium expenditure Signup and view all the answers

How is the multiplier calculated?

K = Change in Income (∆Y) / Change in Aggregate Expenditure (∆ AE) Signup and view all the answers

What is the effect of an increase in the marginal propensity to consume (MPC) on the multiplier?

It increases the size of the multiplier Signup and view all the answers

What type of multiplier describes the impact of an initial change in planned investment on income?

Planned investment multiplier Signup and view all the answers

How does an increase in autonomous expenditure influence real GDP?

It leads to an increase in real GDP Signup and view all the answers

Which of the following multipliers assesses the impact of government spending?

Government spending multiplier Signup and view all the answers

What does the multiplier effect suggest about the relationship between autonomous expenditure and equilibrium expenditure?

Equilibrium expenditure increases more than the change in autonomous expenditure Signup and view all the answers

What happens to induced expenditure following an increase in real GDP?

It increases Signup and view all the answers

How does a lump sum tax affect the consumption function?

It has no effect on the value of b (MPC). Signup and view all the answers

What is the equivalent consumption function after imposing a 10% proportionate tax on income?

C = 100 + 0.75(0.9Y) Signup and view all the answers

In a closed-economy without taxes, when does national income equilibrium occur?

When planned aggregate expenditure equals aggregate output. Signup and view all the answers

In a two-sector economy, what represents an injection into the spending stream?

Investment spending Signup and view all the answers

Using the consumption function C = 500 + 0.5Y and I = 100, what is the national income equilibrium?

1200 Signup and view all the answers

How are savings categorized in the context of national income equilibrium?

As leakages from the spending stream. Signup and view all the answers

What happens to b (MPC) when proportionate taxes are imposed?

It slightly decreases depending on the percentage of the tax. Signup and view all the answers

What is the equation that relates savings, investment, and national income equilibrium?

S = I Signup and view all the answers

What is the formula for the planned investment multiplier based on lump-sum tax conditions?

1 / (1 – MPC) Signup and view all the answers

How is the change in equilibrium income calculated for an increase in investment under lump-sum taxes?

∆Y = 1 * ∆I / (1 - MPC) Signup and view all the answers

What is the effect of an increase in government spending under lump-sum tax conditions?

It increases the equilibrium income by multiplying the change in government spending. Signup and view all the answers

What is the formula for the tax multiplier based on the increase in taxes?

1 / (1 - MPC + MPC * MPT) Signup and view all the answers

What is the impact of a change in taxes on equilibrium income?

It can decrease or increase equilibrium income based on the type of tax change. Signup and view all the answers

In the context of the government spending multiplier, what does 'Kg' refer to?

The government spending multiplier Signup and view all the answers

What is an injection into the spending stream in a three sector economy?

Government spending Signup and view all the answers

In the national income equilibrium formula S + T = I + G, what does T represent?

Taxes Signup and view all the answers

If the function for savings is S = -500 + 0.5Yd, what happens to savings when disposable income increases?

Savings increase Signup and view all the answers

What is the national income equilibrium value calculated when S = -500 + 0.5(Y - T), I = 100, G = 80, and T = 10?

1350 Signup and view all the answers

What happens to national income when government taxes are increased?

National income tends to decrease Signup and view all the answers

Which of the following correctly identifies leakages from the spending stream?

Both B and C Signup and view all the answers

When considering proportionate tax in the savings function, what is the key difference from lump sum tax?

Proportionate tax impacts disposable income directly Signup and view all the answers

In the three sector economy, which action typically leads to an increase in Real GDP?

Increase in government spending Signup and view all the answers

What represents the equilibrium intersection in the graphical representation of the national income?

Where S + T intersects I + G Signup and view all the answers

Which notation correctly indicates a decrease in savings due to taxation in the equilibrium analysis?

S = -225 + 0.25Y Signup and view all the answers

Study Notes

National Income Equilibrium and Aggregate Expenditure (2 and 3 Sectors Economy)

This chapter covers national income equilibrium and aggregate expenditure in both two-sector and three-sector economies.
It details the components of aggregate expenditure (AE), including consumption, investment, and government spending.
The relationship between consumption (C) and income (Y) is crucial.
Autonomous consumption (a) is the consumption spending when income is zero.
The marginal propensity to consume (MPC) is the slope of the consumption function.
The marginal propensity to save (MPS) is 1 - MPC
The relationship between saving (S) and income is also important
Consumption functions can be linear or non-linear, with corresponding saving functions
Planned investment is constant and independent of income.
Induced investment is dependent on the national income.
Factors affecting investment include interest rates, expected risk/return, and inventory changes.
government expenditure (G) and taxes (T) are part of the three-sector model.
Taxes can be lump-sum (fixed amount) or proportional (percentage of income).
Equilibrium occurs when aggregate expenditure (AE) equals aggregate output (Y). This is also referred to as the macroeconomic goods/services market equilibrium
Equilibrium calculations may involve different approaches, like the injection-leakage or AE models
The multiplier effect magnifies changes in autonomous expenditure.
Multipliers associated with planned investment, government spending, and taxes are examined in detail
Formulas for multipliers under different tax scenarios are provided (lump-sum and proportional).

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Description

Test your understanding of economic equilibrium concepts, including disposable income and the effects of government spending. This quiz covers calculations related to aggregate expenditure, multipliers, and changes in national income. Ideal for students exploring macroeconomic principles.