Julie Minchee A.
Cinto
BSEcon – 2 b.)
P
PROBLEM SET 1
75
1. Qd = 20000 - 400P S
Qs = -4000 + 800P 60
58
45
Qd = Qs
20000 - 400P = -4,000 + 800P 30
20000 + 4000 = 800P + 400P
24000 = 1200P 15
25
2
1200 1200 D
Q
-100 0 100 140 200 290 300 400 500
P* = 20
Qd = 20000 – 400P
= 20000 – 400 (20) c.)
= 20000 – 8000 Qd = 200 - 5P + 0.002 (50000)
Qd = 12000 = 200 - 5P + 100
Qd = 300 - 5P P
Qs = -4000 + 800P
= -4000 + 800 (20) 75
= -4000 + 16000 S
Qs = 12000 60
58
45
Q* = 12,000 units 30.77
30
15
25
2. Qd = 200 - 5P + 0.002Y 2
D
146 Q
Qs = -100 + 8P 0 100
140
200 290 300 400 500
a.) Qd = 200 - 5P + 0.002 (45000)
= 200 - 5P + 90
d.) Qd = 300 – 5P
Qd = 290 - 5P
Qs = -100 + 8P
Qd = Qs
Qd = Qs
290 – 5P = -100 + 8P
300 - 5P = -100 + 8P
290 + 100 = 8P + 5P
300 + 100 = 8P + 5P
390 = 13P
400 = 13P
13 13
13 13
P* = 30 400
P* = ≈ 30.77
13
Qd = 290 – 5P
= 290 – 5 (30) Qd = 300 – 5P
= 290 – 150 400
= 300 − 5 ( 13 )
Qd = 140 1900
Qd = 13
Qs = -100 + 8P
= -100 + 8 (30) Qs = -100 + 8P
= -100 + 240 400
= −100 + 8 ( 13 )
Qs = 140 1900
Qs = 13
Q* = 140 units
1900
Q* = or 146 units
13
As the income rises the demand for a For tax:
certain good also increases, leading to the T = tY
shift of demand curve to the right. = 0.12 (840.34)
T ≈ 100.84
3. Y = C + I0 + G0
C = C0 + bYD For Disposable Income:
T = tY Yd = Y – T
= 840.34 – 100.84
a.) Endogenous variable: Y, C, T, YD
Exogenous variable: I0, G0, C0 Yd ≈ 739.5
Parameter: b, t
For Consumption:
C = C0 + bYd
b.) Y = c + I0 + G0 = 30 + 0.92 (739.5)
= (C0 + b(Y – tY)) + I0 + G0 = 30 + 680.34
Y= C0 + bY(1 - t) + I0 + G0
Solve for Y: C = 710.34
Y – bY (1- t) = C0 + I0 + G0
Y (1 – bY (1- t)) = C0 + I0 + G0 b.)
1 – bY (1- t) 1 – bY (1- t) Y = 30 + 0.92Y(0.88) + 75 + 60
Y = C0 + I0 + G0 Y = 30 + 0.8096Y + 135
1– b(1- t) Y = 145 + 0.8096Y
1
Multiplier = Y - 0.8096Y = 165
1−𝑏 (1−𝑡)
Y (1 - 0.8096) = 165
𝑌0.1904 165
c.) the parameters must satisfy these = 0.1904
0.1904
conditions: 165
Y = 0.1904 or
1. 0 < b < 1
≈ 866.60
2. 0 < t < 1
3. The denominator 1-b(1-t) must be
ΔY = 866.60 – 840.34
positive
ΔY = 26.26
4. C0 = 30
c.) I0 = 60 G0 = 70
b = 0.92
t = 0.12
I0 = 70 Equilibruim for: National Income
G0 = 60
Y = 30 + 0.92Y (0.88) + 60 + 70
= 30 + 0.8096Y + 130
Y = 160 + 0.8096Y
a.) Y = C0 + bY (1 – t) + I0 + G0
Y - 0.8096Y = 160
Y = 30 + 0.92Y (1 - 0.12) + 70 + 60
Y (1 – 0.8096Y) = 160
Y = 30 + 0.92Y (0.88) + 70 + 60
Y0.1904 = 160
Y = 160 + 0.8096Y
0.1904 0.1904
165
Y - 0.8096Y = 160 Y = 0.1904 or ≈ 840.34
Y (1 - 0.8096) = 160
Y0.1904 = 160
0.1904 0.1904
For tax:
160
Y = 0.1904 or ≈ 840.34 T = tY
= 0.12 (840.34)
T ≈ 100.84
For disposable income: c.)
Yd = Y – T Is saving equal to investment?
= 840.34 – 100.84
Yd = 739.5 In an open economy, savings can be
Calculated as: S=Y-C–T
Output Y = 500
For consumption: Taxes T = 100
C = C0 + bYd Consumption C = 5 + 0.60 (500)
= 30 + 0.92 (739.5) = 305
= 30 + 680.34
C = 710.34 S = 500 – 305 – 100
S = 95
Thus, there is no changes in the
equilibrium values of Y, C and T when Io Io = 100
declines from 70 to 60, and Go increase 60
to 70. - Savings (S = 95) is not equal to
investment (Io = 100), saving does not
5. C= 5 + 0.75 Yd equal investment in this economy.
T= 0.20Y
d.) Determine the change in the equilibrium…
Assume Io = 100; Go = 110; Xo = 90 & Mo =
105 Mo = 105 -20
= 85
a.) Find the equilibrium output
Y = (5 + 0.60Y) + 100 + 110 (90-85)
Yd = Y-T C= 5 + 0.75 (0.80Y) Y = 5 + 0.60Y + 100 + 110 + 5
= Y – 0.20Y C= 5 + 0.60Y Y = 220 + 0.60Y
= 0.80 Y
Y – 0.60Y = 220
Y= (5+0.60Y) + 100 +110 + (90-105) Y.040 = 220
= 5 + 0.60Y + 100+110 – 15 0.40 0.40
Y= 200 + 0.60Y Y = 550
Y – 0.60Y = 200 ΔY= 550 -500
Y0.40 = 200 ΔY = 50
0.40 0.40
Y = 500 - equilibrium output increases by 50 units
when autonomous import decline by 20.
b.) If the budget in this economy balanced
T = 0.20 (500)
Go = 100
T = 100
-Since the government spending (Go =
110)
Is greater than tax revenue (T = 100), the
budget is in deficit by 10 units
