1. Ivyland has the following consumption function:
C = 100 + 8YD

Firms in Ivyland always invest $700 and net exports are zero. The Government budget is balanced with spending and taxes both equal to $500.

A. What is equilibrium GDP?
B. How much is Private Saving? How much is Government saving? How much is Foreign Saving of USD? Is saving equal to investment at equilibrium income?

2. I Suppose;
C = 100 + .6YD where YD is disposable income
I = 50
G = 100
X = 50
IM = 100
T = 100

A. What is equilibrium national income (GDP)?
B. What is the algebraic expression for the multiplier to any change in autonomous spending? What is its value in .this problem?

II. Now suppose that taxes are a function of income.
Taxes: T - .2Y where Y is national income.
Everything else remains as in part I.

a) What is Equilibrium National Income?
b) What is the algebraic expression for the multiplier? What is its value?
c) Why is this multiplier smaller than in (I)?

III. Now suppose that taxes are still as in (II). T = .2Y
and imports are also a function of national income: IM - .23 Y
Everything else remains as before.

A. What is Equilibrium Income?
B. What is the algebraic expression for the Multiplier? What is its value?
C. Why is this Multiplier smaller than in (II)?
D. Suppose full employment income is 400 more than Equilibrium Income. Answer the following assuming the Keynesian model.

i) How much would Government spending have to rise to put equilibrium at full employment?

3. Why are wages likely to be sticky?

4. Define Stagflation. Explain stagflation caused by a supply side shock.

5, Assume:
Real Consumption: C = 100 + .75V + .10 W/P
Real Investment: I = 100
Exports = Imports:
Nominal Wealth: W = 3,000

A. Find equilibrium income in the expenditure model for P = 1.0;
for P = 1.5; and for P = 2.0
Plot the results with P on the vertical axis and Y on the horizontal axis. What is this curve called?

B. Then suppose that investment rises by 100 so that:
I= 200
I. What is the Multiplier?
II. Find Equilibrium Income when P = 1, P = 1.5, and P = 2.0

C. Plow far did AD shift?

D. If AS is horizontal at P = 1, what happened to equilibrium income?

6. Using a Keynesian diagram, graph the following consumption function:
C = 100 + (3/5) YD

A. What is the marginal propensity to consume?
B. What is the marginal propensity to save?
C. What is the average propensity to consume, C/ YD when disposable income is $1,000
D. What is the saving function?
E. At what level of disposable income is saving zero?

The remaining questions are multiple choice.

Turn the page for Questions 7, 8, and 9.

7. Given:
The AS curve is horizontal at P=l
C =100 + .8YD
I = 50
G = 100
T = .2Y
X = 150
IM = 50 + .14Y

Then the multiplier is:
A. 1.0
B. 2.0
C. 1/.22 4.545
D. None of the above

8. Using the information in problem 7, if exports fall by 50, then equilibrium income will
A. increase by approximately 227
B. decrease by approximately 227
C. increase by 100
D. decrease by 100

9. Which of the following would shift US aggregate supply rightward?
A. The world's supply of oil falls.
B. Lab or unions strengthen and fight harder for higher wages.
C. As more recent college graduates move into the labor markets, they teach fellow employees the newest ways to get more accomplished with computers.
D. Capital equipment becomes more expensive

1. Ivyland has the following consumption function: C = 100 + 8YD...