Use the national income data in the table below to compute the following:
National Income Data
National Income Accounting Data Amount (billions)
Compensation of employees $288.2
US exports of goods and services 63.4
Consumption of fixed capital 23.6
Government purchases 188.8
Taxes on production and imports 28.8
Net private domestic investment 104.2
Transfer payments 27.8
US imports of goods and services 33.0
Personal taxes 81
Net foreign factor income 4.4
Personal consumption expenditures 438.2
Statistical discrepancy 0
Compare a $40,000 income in 1980 to 2010 and analyze the following questions:
• What are the differences in the available products?
• What are the differences in the quality of products?
• If you made $40,000 in 1980 and in 2010, what would your income status or wealth be in each time period?
• In which period would you choose to live, and why?
• In the aggregate demand model in equilibrium, GDP (Y) = C + I + X (open economy).
• Where C = consumption schedule = 100 + .75Y (consumption is a function of income).
• Where I = planned investment = 20 and X = net exports = 40. Both are independent of GDP (Y).
Use the information provided above to complete the following:
1. Calculate the equilibrium level of income or real GDP for this economy.
2. What happens to equilibrium Y if Ig changes to 15? What does this outcome reveal about the size of the multiplier?
1. Suppose the consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy’s multiplier is 4. If household wealth falls by 5 percent because of declining house values, and the real interest rate falls by 2 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? In what direction and by how much will it eventually shift?
2. Use the hypothetical economy in the table below to calculate the aggregate demand and supply, as well as its price level.
3. Given the above information, in this hypothetical economy what is the equilibrium price level and the equilibrium level of real output? Using Excel, graph both the aggregate demand and aggregate supply curves.
1. Can there be equilibrium level of output at below full employment?
2. At what price level will aggregate supply equal aggregate demand? At what price level will demand fall below aggregate supply? Given a price level of 250 will aggregate demand exceed supply?
3. If the aggregate demand schedule shifted by $20 billion to the right at every level, what would be the new equilibrium level of income?
Amount of Real GDP Demand (in billions) Price Level (Price Index) Amount of Real GDP Supplied (in billions)
$180 300 $500
260 250 400
300 200 300
420 150 200
560 100 100
Read the Problem Preparation and Submission Guidelines linked in the resources before submitting your assessment.