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ECO 212 Lesson 3

The document presents national income accounting data and requires calculations for Net Domestic Product, Net exports, and Gross National Product. It also outlines a hypothetical economy model to derive equilibrium income and calculate its implications, including the investment expenditure multiplier. Additionally, it includes calculations for equilibrium income and consumption based on given consumption schedules and changes in investment.

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11 views11 pages

ECO 212 Lesson 3

The document presents national income accounting data and requires calculations for Net Domestic Product, Net exports, and Gross National Product. It also outlines a hypothetical economy model to derive equilibrium income and calculate its implications, including the investment expenditure multiplier. Additionally, it includes calculations for equilibrium income and consumption based on given consumption schedules and changes in investment.

Uploaded by

siphelelefakudze88
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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ECO 212 Lesson 3

(a) Given the following National income accounting


data (in millions of Pula):

Entry Amount (Millions of


Current Pula)
GDP 7500
Gross investment 700
Net investment 150
Personal consumption 4500
expenditure
Government purchases 900
Personal taxes 300
Factor income to abroad 200
Factor income from 100
abroad
Calculate the following:

(i) Net Domestic Product [4 marks]

(ii) Net exports [3 marks]

(iii)Gross National Product [3 marks]


b) Assume a hypothetical economy defined by the following
model:
Y=C+I+G
Where C = c0 + c1Yd; Yd = Y – T
T = tY
G = G0
I = I0
Y = Income
C = Consumption expenditure
I = Investment expenditure
G = Government expenditure
T = Taxes
t = Tax rate
Yd = Disposable income
1. Derive an expression for equilibrium income
[3 marks]

2. Given that autonomous consumption = 100,


investment expenditure = 75, government
expenditure = 125, MPC = 0.8, tax rate =
0.25, calculate the equilibrium level of
income
[2 marks]
3. Calculate and interpret the policy
implications of the investment expenditure
multiplier. [1 mark]
zz
c) Y = C + I + G + X-M, where

Consumption schedule is given as C= 100 +0.75Y


Investment (I) = 50
Government (G) = 100
and Net Export (X-M) = 20
i. Calculate the Equlibrium Level of Income [4
Marks]
ii. Calculate the size of Consumption at the Equilibrium
Level [2
Marks]
iii. Calculate the value of the Government Multiplier
[2 Marks]
iv. Assume Investment (I) changes by 50; calculate the
new equilibrium level of Income [3 marks]
d) Given: C = 100 + 0.75Yd (where Yd = Y-T)
I = 120-600i
G = 200
T = 20 + 0.2Y
Ms/P = 300
Md/P = 50+0.5Y-600i

Where: C = Consumption
Y = Income
I = Investment
G = Government spending
T = T22axes
i = interest rate
Ms/P = Real Money Supply
Md/P = Real Demand for Money

(i) Derive the IS and LM curves [10 marks]


(ii) Using the information above find the value of I
[5 marks]

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