Chapter 13 HW questions

5. In a Keynesian framework, which of the following events might cause a

recession? Which might cause inflation? Sketch AS-AD diagrams to
illustrate your answers.
a. large increase in the price of the homes that people own
Increase in price and inflation.
b. rapid growth in the economy of a major trading partner
Decrease in price, would lead to recession.
c. the development of a major new technology offers profitable
opportunities for business
Would lead to inflation
d. the interest rate rises the goods imported from a major trading
partner become much less expensive
Would lead to inflation
e. the goods imported from a major trading partner become much less
expensive
Would lead to a recession.

10. Based on the following data, calculate the amount saved, the MPC, and the MPS.

The MPC is 0.95 and the MPS is 19.

Income Consumption Savings

5,000 4,000 1000
6,000 4,950 1050
7,000 5,900 1100
8,000 6,850 1150
9,000 7,800 1200

12. . In the Keynesian cross framework, fill in the following table

Slope up, What What moves entire

Down, or flat determines function up or
slope down
Consumption U C Pric
function p o e
n Lev
s el
u
m
p
t
i
o
n
Investment F I Pric
function l n e
 a v Lev
t e el
s
t
m
e
n
t
Government U G Exp
spending function p D orts
P
Export D E Imp
function o x orts
w p
n o
r
t
s
Import U I Exp
function p m orts
p
o
r
t
s
14. The chart below represents the data behind a Keynesian cross diagram. Assume
that the tax rate is 0.4 of national income; the MPC out of after-tax income is 0.8;
investment is 2,000; government spending is 1,000; exports are 2,000; and
imports are 0.05 of after-tax income. What is the equilibrium level of output for
this economy?

National After-tax Minus Aggregate

Income income Consumption I+G+X Imports Expenditures
8,000 4,800 4,340 5,000 240 9,100
9,000 5,400 4,820 5,000 270 9,550
10,000 6,000 5,300 5,000 300 10,000
11,000 6,600 5,780 5,000 330 10,450
12,000 7,200 6,260 5,000 360 10,900
13,000 7,800 6,740 5,000 390 11,350