MACROECONOMICS I

An economy with a marginal propensity to consume of 0.75 has a multiplier

de : a) 0.75; b) 1.333; c) 4; d) 5

2. When the marginal propensity to consume increases, the multiplier:

a) disminuye; b) aumenta; c) no se altera

3. Savings and investment, in a closed economy without government, are:

equal;

4. The investment depends on the interest rate in the following way:

a) directa; b) inversa; c) no depende la tasa

5. Friedman proposed an alternative hypothesis for the consumption function, the hypothesis:
of the accelerator

6.- An increase of 3% in public spending in an economy with a marginal propensity to

consuming from 0.8 will result in an increase of the product by: a) 5%; b) 9%; c) 15%; d) 21%

7. The hypothesis that says people spend differently over time is the
permanent income

8. Automatic stabilizers: a) increase the size of the multiplier; b) decrease the

size of the multiplier; c) intensify fluctuations in national income; d) cause
unemployment

9. If the government increases taxes and spending by $100, then with a propensity
marginal consumption of 0.80; the income level: a) will decrease; b) will increase; c) will remain
constant. How much will it increase, decrease or remain constant?

10. The only difference between tax multipliers (MTx) and transfer multipliers
MTRis that: a) MTRIt is one more than MTx; b) MTx is one more than MTRc) one affects
and while another affects the PMgC; d) one is positive, while the other is negative

11. If the decrease in government spending is offset by an increase in transfers

of the same proportion, the income level: a) will remain the same; b) will rise; c) will fall

12. If a certain economy has a marginal product of capital of 2/3 and a full employment deficit of $30 billion.
To achieve full employment, it would be necessary to increase: a) Y by 90 billion;
b) the Y at 10 billion; c) the investment expenditure at 10 billion

13. The value of the multiplier in an economy where there is no government sector, when the
The value of the PMgC is 0.6, it will be: a) 2.5; b) 1.0; c) 2.0; d) 7.5

14. If the MArginal Propensity to consume is 0.8 and investment spending increases by $100, the equilibrium income
aunentará en: a) $ 100; b) $300; c) $400; d) $500

15. Between the PMgC and the PMgA, the following relationship always holds: a) their sum is equal to 1; b)
their sum is equal to disposable income; c) there is no relationship between them

16. The investment multiplier is:

a) negativamente relacionado con la propensión marginal a ahorrar; b) positivamente relacionado
with the marginal propensity to consume; c) positioned above one if the propensity
marginal savings is less than 1; d) all of the above; e) a) and c) are valid

17. If the economy is in equilibrium when public spending and taxes increase in
 more than 500, with the PMgC standing at 0.8:
a) la demanda agregada se mantiene inalterada en su nivel de equilibrio inicial; b) la demanda
aggregate demand decreases by 100; c) aggregate demand increases by 100; d) aggregate demand
increase by 500; d) none of the above

18. If the multiplier in a simple Keynesian model is 4; what is the value of the propensity?
marginal to savings:
greater than one

19. The equilibrium income is obtained in that situation where:

a) planned saving is equal to the investment made; b) aggregate demand is equal to the
offered quantity; c) savings is equal to consumption; d) a) and b) are valid

20. If consumer preferences translate into an increase in savings:

a) el nivel de renta de equilibrio será inferior; b) el nivel de renta de aquilibrio coincide con el pleno
employment; c) the equilibrium income level will increase; d) none of the answers are valid
previous

21. When the increase in public spending is fully financed by public debt, the income
national
increases to a greater extent
in a manner proportional to the expense; d) it is increased by the same amount

22. The government can increase GDP and reduce the unemployment rate:
a) reducing taxes; b) increasing purchases and maintaining taxes
unaltered; c) increasing public spending and taxes by the same amount; d) all the
the clauses are
correct

23. An increase in taxes implies:

a downward shift of the consumption function;
added; c) a reduction of the equilibrium rent; d) all of the previous answers are valid

24. An example of an automatic fiscal stabilizer can be: a) technology; b) prices of the
energy; c) variable taxes, d) an increase in public spending on roads

25. The state will have a budget surplus when:

a) public savings is lower than public investment, b) public savings is higher than the
public investment; c) public debt is zero; d) public investment is higher than consumption
public

TOPICS TO DEVELOP

1Why is it not possible to permanently sustain a situation in which income is below

above the equilibrium level?

Because it creates a deficit

2. Justify, in terms of planned saving and planned investment, that if production were
below the equilibrium level, forces would come into play that would cause it to increase.
For the injection of money

3. In what sense does the marginal propensity to consume play an important role in the process?
income multiplier?

The income multiplier is the more than proportional change that a country's income experiences.
in the face of a change in an exogenous variable such as investment or government spending.
The income multiplier assumes that there is a chain effect that causes the initial impetus.
from an exogenous variable, such as investment or government spending, grows beyond the initial level. Thus

for example, if the investment increases by 100, income will increase by more than 100 in an effect that is seen
multiplied. The relationship between the increase in consumption and the increase in income is called
marginal propensity to consume (MPC).

4. If the investment experiences an increase of 100 million pesos, how much will the rent increase?
If the marginal propensity to save is 1/3? 33.33 million

5. If the full employment income of an economy is 3,200 million pesos and the total expenditure
The projected (C + I) is only 3,000 million pesos, how much does rent have to increase for
reach equilibrium, if the PMgC = 2/3?
25%

6. In what sense is it said that changes in taxes are a tool of control of the
Aggregate demand <<almost>> as powerful as a change in public spending?

With the restrictive fiscal policy, which generates a surplus in the State Budgets.
mechanisms are the opposites that in the expansive, the goal is to reduce public spending, to lower the
demand and therefore production, or reduce private spending by raising taxes so that the
citizens have a lower income, reduce their consumption and, with that, the demand
economic. It is carried out when the economy is experiencing a period of excessive expansion and has
the need to slow down to avoid the rise in prices (inflation).

7. Knowing that the MPC = 0.8, if public spending increases by 200 million pesos: What about
How much will taxes have to be raised to compensate for the increase in public spending?

It must be increased by the same amount.

Perhaps in this case the equal increases in government spending and taxes do not
have no effect on equilibrium income. After all, additional government spending
corresponds to the amount added from taxes collected by the government. But this is not the case. By
For example, let's take the increase of 200 million in government spending. We know that a
an increase of 200 in G, with the constant taxes (T), must raise
the level of income equilibrium at 200 × the government spending multiplier.

8. What is the relationship between the state's deficit and public debt?

The difference between public deficit and debt is that the former is a flow variable and the latter is one.
variable stock. That is, the public deficit represents the difference between income and expenditure in a year.
concrete. Meanwhile, the debt is the variable to which the deficit is added or subtracted. The result is the
total public debt.

9. Comment in the context of the multiplier model on the following statement made by the
Secretary of Finance: “Next year, household consumption will become the pillar of
growth, mainly thanks to the tax reform that provides for tax cuts

As production increases, the economy generates more income. Workers with new
occupations are also consumers and a part of their income is spent. With more spending of
consumption, planned expenditure is greater than production, inventories decrease more than what is
anticipated and companies increase production, which again increases income.
Furthermore, the government does not spend less than before the tax cuts, and households have a
available income greater, after deducting taxes. This strengthens consumption. And the
planned total expenditure increases, so there are fewer stocks than planned and thus
increase production. When it rises, more workers are hired and more is generated.
income, which leads to another round of consumption promotion, etc.

10. Comment on the following phrase: "The greater the savings of families, the lower the level of
production of the economy
Consumption is extremely important as it is the 'engine of the economy', and in that way if the
families perceive a certain income and spend it (consume) which would allow companies to recover
the resources invested and thus continue with the income-expense cycle. But if families do not consume
some part of their income, then this cycle will be interrupted, causing production to decrease and
the income. It is necessary that somehow that income returns to the income-expense cycle. Thus
it could involve channeling those unspent resources from families to other sectors that
if they are willing to spend them, and if companies manage to receive those unused revenues
they will then be able to acquire more capital or production goods, which will increase the
productive capacity of the economy.

Saving is important, as if society dedicates all or almost all of its income to consumption
There is very little left for savings, and consequently it will be difficult to finance the increase of
the productive capacity (investment). Thus, it could be concluded that for the economy to grow it is
it is necessary to increase production capacity, to increase this production capacity it is
It is necessary to invest, and in order to invest, it is necessary to save.

PROBLEMS

1. In a closed economy without government: C = 100 + 0.8 Y I = 50

calculate the equilibrium income
DA = C + I
DA = C + C1Y + 1
DA = Y
Y = C0 + C1Y + 1
Y - C1Y = C + 1
Y ( 1 - C1 ) = C + I
Y = C + 1 / 1 - C1
Y = 100 + 50 / 1 - 0.8
Y = 750

b) calculate the level of savings

Given a private and closed economy, investment will be equivalent to savings, since what is not
consume is invested
I = s = 50

; c) if the production level were 800, what would the level of involuntary accumulation be?
stocks?

Y = C + C1 + 1
Y = 100 + 0.8 ( 800 ) + 50
DA = 100 + 640 + 50
DA = 790

800 - 790 = 10

How will an increase in investment to 100 affect the product?

Y1e = ( C0 + I1 ) / ( 1 - C1 )

Y1e = 100 + 100 / 1 - 0.8

= 1000 When the investment increases to a value of 100, the equilibrium income also increases.
increases it to a value of 250

Y1E= 250

e) calculate the multiplier;

=1 / 1 – C1 = 5
1 / 1 - 0.8 = 5

2. Given the following information: C = 100 + 0.9 Y d

I = 100
G = 200
TR = 62.5
Tx = 0.25 Y

a) calculate the equilibrium income;

Y=C+I+G
Y = (100 + 0.9 Yd) + I + G
Y = [ 100 + 0.9 ( Y – T ) ] + I + G
Y = [ 100 + 0.9 ( Y – 0.25 * Y ) ] + 100 + 200
Y = 100 + 0.9 * 0.75 Y * Y + 300
Y = 400 + 0.675Y
Y = 592.5925925925926
Y = 592.69

b) calculate the value of the multiplier;

Y E = 1 / 1-09 = 0.1

c) calculate the budget balance;

SP = I - G
SP = 100 - 200
SP = - 100
d) calculate the effects on income and the budget balance of a change in the level of
investment at 200;

Y=C+I+G
Y = (100 + 0.9 Yd) + I + G
Y = [ 100 + 0.9 ( Y – T ) ] + I + G
Y = [ 100 + 0.9 ( Y – 0.25 * Y ) ] + 200 + 200
Y = 100 + 0.9 * 0.75 Y * Y + 400
Y = 500 + 0.675Y
Y = 500 / 0.675
Y = 740.74

e) e) if the full employment production level is 1,500 and the available instrument is
public spending, what amount should it vary to achieve it

Y = 100 + 0.9 (1500) + 100

Y = 100 + 1350 + 100
Y = 1550

f) Suppose a reduction of Tx = 0.20 and what effects it will have on the balance of the
budget, on the equilibrium rent and on the multiplier?
Y=C+I+G
Y = (100 + 0.9 Yd) + I + G

Y = [ 100 + 0.9 ( Y – T ) ] + I + G
Y = [ 100 + 0.9 ( Y – 0.20 * Y ) ] + 100 + 200
Y = 100 + 0.9 * 0.8 Y * Y + 300
Y = 400 + 0.72Y
Y = 400 / 0.72
Y = 555.55
3. In Ecolandia, there is a situation of serious economic crisis. The market crash of
values, after a few years of frenzied growth of the various stock market indices
it is now known that with merely speculative character, and without adhering to the rules
The most basic investment has plunged the country into a process of continuous business closures,
increase in unemployment, as well as increasingly tense social protests.
The Minister of Economy, advised by unions and some experts in the
subject, manages a series of economic action alternatives in order to achieve that
the country recovers economic and social normality. The valued alternatives are collected
in the following table:

Alternative 1 Do not intervene, let the market return to equilibrium by itself.

Alternative 2 Reduce the taxes from 15% to 5%
Alternative 3 Spend 1 billion pesos on school supplies and equipment
sanitary, keeping taxes at 15% (increase in transfers)
Alternative 4 Spending 1 billion pesos on social salaries, maintaining the
15% taxes (increase in public or government spending)

Evaluate the usefulness of each of these alternatives for the purposes pursued by the Minister, and
indicate which of them can best contribute to the recovery of Ecolandia's economy,
knowing that at that time the country's income is 10,000 million pesos and that the PMgC
is equal to 0.75