ECO102 Tutorial 05

Midterm Review

• 1
  • $200$ popl
  • $90$ employed
  • $10$ unemployed
  • $\text{Unemp.}=\frac{\text{Unempl.}}{\text{Labour Force}}$
  • $\text{Unemp.}=\frac{10}{10+90}=\frac{1}{10}=0.1$
• 2
  • $B=0$
  • $SM=4$
  • $t=0.2$
  • $\mathrm{\Delta }G=50$
  • Find the Budget Balance
  • $B=T+Yt-G$
  • $B=0+0.2Y-50$
  • What's $\mathrm{\Delta }Y$
    • $\mathrm{\Delta }Y=\mathrm{\Delta }G\times SM$
    • $\mathrm{\Delta }Y=50\cdot 4=200$
  • $B=0+(0.2)(200)-50=-10.0$
  • You are now in deficit.
• 3
  • You have $10000$ plastic
  • Used $8000$ plastic
  • $50000\mathrm{\$}$ of toothbrushes made
  • $10000$ is our cost
  • $8000$ used so $2000$ is inventory
    • no value added to the $2000$ of materials still there.
  • $50000-8000=42000$ value added
• 4
  • $AE=1200+0.5Y$
  • $C=400+0.75(1-t)(Y)$
  • Calculate house savings
    • $S=Y_D-C$
    • $S=(Y-Yt-T)-C$
    • $S=(Y-0.2Y-T)-(400+0.75(1-0.2)(Y))$
    • $S=0.2Y-400$
  • Set $AE=Y$
    • $Y=1200+0.5Y$
    • $Y=2400.0$
  • Saved
    • $S=(0.2)(2400)-400=80.0$
• 5
  • $SM=2$
  • $MPC=0.8$
  • $MPI=0.06$
  • Find the direct tax rate
  • $SM=\frac{1}{1-(MPC(1-t)-MPI)}$
  • $2=\frac{1}{1-(0.8(1-t)-0.06)}$
  • $t=0.3$
  • #tk remember the formula.
• 6

  • $C=30+0.9(1-0.2)Y$

  • $I=40$

  • $G=20$

  • $N{X}_0=30-0.12Y$

  • $N{X}_1=10-0.12Y$

  • $AE=C+I+G+NX$

  • $A{E}_0=C+I+G+NX$

    • $A{E}_0=(30+0.9(1-0.2)Y)+(40)+(20)+(30-0.12Y)$
    • $A{E}_0=0.6Y+120$
    • $Y=0.6Y+120$
    • $Y=300.0$
    • $N{X}_0|{}_{Y=300}=30-(0.12)(300)=-6$

  • $A{E}_1=C+I+G+NX$

    • $A{E}_1=(30+0.9(1-0.2)Y)+(40)+(20)+(10-0.12Y)$
    • $A{E}_1=0.6Y+100$
    • $Y=0.6Y+100$
    • $Y=250.0$
    • $N{X}_1|{}_{Y=250}=10-(0.12)(300)=-26$

  • How much would $G\uparrow$ is needed to offset the shock

    • $SM$ Method
      • $SM=\frac{1}{1-(MPC(1-t)-MPI)}$
      • $SM=\frac{1}{1-(0.9(1-0.2)-0.12)}=2.5$
      • We want $Y=250\to 300$
      • $300-250=50$ increase in $Y$ or $AE$
      • $\frac{50}{2.5}=20.0$ increase in $AE$ is required
      • $A{E}_2=(30+0.9(1-0.2)Y)+(40)+(20+20)+(10-0.12Y)$
      • $A{E}_2=0.6Y+120=A{E}_0$
      • $N{X}_2=N{X}_1$
    • TA Method
      • If $NX\downarrow 20$, to offset the shock, we need to increase $G\uparrow 20$.
      • Same as above for $A{E}_2$
      • $N{X}_1=10-0.12(300)=-26.0$
    • $A{E}_0-A{E}_1=20$
      • This is what we need to increase $A{E}_1$ by.
    • Fake AE

    left=-5; right=400;
    top=400; bottom=-5;
    ---
    y=0.6x+120
    y=0.6x+100
    y=x
    (300,300)|label:A=C
    (250,250)|label:B
    x=300|dashed
    x=250|dashed
    

    left=-5; right=400;
    top=50; bottom=-50;
    ---
    y=30-0.12x
    y=10-0.12x
    x=300|dashed
    x=250|dashed
    y=-6|dashed
    y=-20|dashed
    y=-26|dashed
    (300,-6)|label:A
    (250,-20)|label:B
    (300,-26)|label:C