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Eco1302 Assign 3

The document is an assignment for an introductory macroeconomics course, focusing on various economic calculations and concepts. It includes tasks such as deriving consumption and saving functions, calculating equilibrium income, and analyzing the effects of changes in investment and government taxes on national income. Additionally, it discusses the impact of specific events on GDP and the importance of checking nominal GDP changes against inflation before celebrating economic growth.

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2 views

Eco1302 Assign 3

The document is an assignment for an introductory macroeconomics course, focusing on various economic calculations and concepts. It includes tasks such as deriving consumption and saving functions, calculating equilibrium income, and analyzing the effects of changes in investment and government taxes on national income. Additionally, it discusses the impact of specific events on GDP and the importance of checking nominal GDP changes against inflation before celebrating economic growth.

Uploaded by

juliettekihara736
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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ECO1302: INTODUCTION TO MACROECONOMICS

ASSIGNMENT III
DATE: JUNE 2024 TIME: 1 HOURS

INSTRUCTIONS: Attempt ALL Questions

ASSIGNMENT III
a) You are provided with the following information about an imaginary economy called Keynesian:
Government expenditure 400

Exports 250

Autonomous imports 50

Autonomous consumption 150

Investment expenditure 300

Full- employment output 1900

Marginal propensity to consume 0.75

Marginal propensity to import 0.15

Tax rate 0.25

Required;

(i) Derive the consumption function


(ii) Derive the saving function
(iii) Calculate the equilibrium level of income using the aggregate expenditure approach.

b) Assume a closed economy where the level of I is 300, G=T=150 and the savings function is S = −30 +
0.15
Where S is savings, I is investment, G is government expenditure, T is taxes and Yd is disposable income.
i) Calculate the equilibrium level of income.

ii) What will be the increase in national income if investment reduces by 25 holding other variables
constant?

iii) Suppose government reduced taxes by 100 in this economy, what would be the change in national
income?

c) How each of the following events is likely to affect GDP?


i) Environmental laws prohibit the firms from emitting pollution

ii) Strikes by trade unions.

iii) Discovery of new seed increases farm harvest.

d) If you woke up in the working & found that nominal GDP has doubled overnight, what statistic would
you need to check before you began to celebrate: Why?

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