GLOBAL ECONOMIC - Assignment Example

Stock College- Global Economic for T Stock College- Global Economic for T Based on the information provided in the table below, the workings of the same problems are shown below: GDP T YD C I G NX AE UI Y will: $18,000  $4,000 $14,000  $7,600  $4,500  $5,000  $4,500 $19,000  0 $22,000  $4,000 $18,000 $10,400  $4,500  $5,000  $4,500 $21,800  $200 $26,000  $4,000 $22,000  $13,200  $4,500  $5,000  $4,500 $24,600 $1,400 $30,000  $4,000 $26,000 $16,000  $4,500  $5,000  $4,500 $27,400  $2,600 $34,000  $4,000 $30,000 $18,800  $4,500  $5,000  $4,500 $30,200  $3,800 $38,000  $4,000 $34,000  $21,600  $4,500  $5,000  $4,500 $33,000  $5,000 $42,000  $4,000 $38,000  $24,400  $4,500  $5,000  $4,500 $35,800  $6,200 Question 1: What Y will be and Draw an AE diagram based on the table above.

Using symbols, where Y represents national income (and GDP), C represents consumption, S represents saving and T represents taxes, we can write: Y = C + S + T Since there are no savings, Y=$7,600 + $4,000 = $11,600 Y=$10,400 + $4,000 = $14,400 Y=$13,200 + $4,000 = $17,200 Y=$16,000 + $4,000 = $20,000 Y=$18,800 + $4,000 = $22,800 Y=$21,600 + $4,000 = $25,600 Y=$24,400 + $4,000 = $28,400 To simplify, we can assume that taxes are always a constant amount, in which case the change in taxes equals zero so that: The AE diagram is as follows.

This refers to a macroeconomic model that focuses on the relationship between total spending and real GDP, assuming that the price level is constant. AE = C + I + G + NX Where the symbols are interpreted as follows Consumption (C) Investment (I) Government purchases (G) Net exports (NX) Question 2: The potential level of GDP refers to the highest levels of gross domestic product that can be attained by a particular economy. In any economy, there is usually the normal gross domestic product.

However, there are usually factors that hinder the economy from fully utilising the factors of production and minimizing costs (Fleurbaey and Blanchet, 2013; Pg. 126). This unattained level of gross domestic product is called the potential level of GDP. For the above case, it is at $38,000. Question 3: MPC = 0.7, find the amount for the austerity or stimulus package that the government needs, explain, and show how it’s calculated. Fill in a second table with the new figures (Cleveland, 2001; Pg. 46). Why is the stimulus or austerity package less than ∆Y?

Show the effect in the AE diagram you have drawn for Q1? Say there is a positive shock to consumption .If, in aggregate, there is more consumption, this means more INCOME for businesses- and as consumers buy more they run down their inventories. As businesses have a target level of inventories, businesses respond to DEMAND and hire more people (Fleurbaey and Blanchet, 2013; Pg. 251). The increase in employment means a further increase in INCOME. Both business owners and employees now have more income to spend.

They will increase their CONSUMPTION – which leads us to the start of the cycle again. This cycle repeats, but at smaller magnitudes each time (due to LEAKAGES – savings, imports and taxes) =1/(1-0.7) =3.333 GDP T YD C I G NX AE UI $59,999.94  $4,000 $55,999  $7,600  $4,500  $5,000  $4,500 $19,000  0 $73,333.26  $4,000 $69,333.26 $10,400  $4,500  $5,000  $4,500 $21,800  $200 $86,666.58  $4,000 $82,666.58  $13,200  $4,500  $5,000  $4,500 $24,600 $1,400 $99,999.90 $4,000 $95,999.

90 $16,000  $4,500  $5,000  $4,500 $27,400  $2,600 $113,333  $4,000 $109,333 $18,800  $4,500  $5,000  $4,500 $30,200  $3,800 $126,666  $4,000 $122,666  $21,600  $4,500  $5,000  $4,500 $33,000  $5,000 $139,999  $4,000 $135,999  $24,400  $4,500  $5,000  $4,500 $35,800  $6,200 List of References CLEVELAND, C. J. (2001). The economics of nature and the nature of economics. Cheltenham [u.a.], Edward Elgar. FLEURBAEY, M., & BLANCHET, D. (2013). Beyond GDP: measuring welfare and assessing sustainability.

Oxford, Oxford University Press. Fleurbaey, M., & Blanchet, D. (2013). Beyond GDP: Measuring welfare and assessing sustainability. Oxford: Oxford University Press.