Macroeconomics

Keynesian model. Multiplier.

Exercise 1.
In hypothetical economy in 2020 planned investments are autonomous and equal 60 (units).
a) fulfill the table
b) If GDP was 100, what would be the reaction of producents?
c) If planned investments increased by 15 units, how should GDP increase in equilibrium?

Changes in
CONSUMPTIO INVESTMENT INVESTMENT
INCOME SAVINGS INVENTORIE
N S AD=C+I S
(OUTPUT) = Y-C S
(planned) (planned) (real)=S
AD-Y
50 35 60 15 95 -45 15
100 70 60 30 130 -30 30
150 105 60 45 165 -15 45
200 140 60 60 200 0 60
250 175 60 75 235 15 75
300 210 60 90 270 30
350 245 60 105 305
400 280 60 120 340

Exercise 2.
Let’s consider the closed economy with government interference model.

If Ca=150, Ia=100, Ga=250, MPC=0,75, t=0,2 calculate:

a) the level of GDP in equilibrium,
b) Multiplier
c) what would be the change in GDP/national income if government expenditure decreased by 100 units?

Exercise 3.
Determine whether the following statements are true or false:

1. Within the monetarist or new classical perspective long run equilibrium will always be restored.

2. Within the Keynesian model and increase in AD will always increase prices.

3. The key distinction between the short and long run is time: if time period is greater than one year we are in
the long run.

4. The Keynesian concept of full employment differs from the monetarist or new classical idea of potential
output where the LRAS unemployment persists.

5. The multiplier is larger the smaller the propensity to consume domestic goods.

Exercise 5.
Assume a closed economy. Calculate the size of MPC if an increase in investments by $122 billion was
responsible for national income increasing from $0,860 trillion to $1,104 trillion.

Exercise 6.
Calculate the size of the necessary increase in government spending to close an $850 million recessionary
gap, if MPC=0,7 and 20$ is taken away as taxes from every 100$ earned.