Name: _______________________

ECO 200-810 Principles of Macroeconomics Spring 2001 Homework #3 due 3/14

  1. Use the table below to answer the following questions.
Income Consumption Net exports Investment Government Aggregate Expenditures
0  
10
100
110
  
100  
10
100
110
  
200  
10
100
110
  
300  
10
100
110
  
400  
10
100
110
  
500  
10
100
110
  
600  
10
100
110
  
    1. If the consumption function is 120 + .8Y, fill in the table above.

      2.  

       
       
       
       

    2. What is the equilibrium level of expenditures?

      3.  

       
       
       
       
       
       
       
       
       
       

    3. Calculate the multiplier.

      4.  

       
       
       
       
       
       

    4. If investment falls to 80, what is the change in equilibrium expenditure?

 
 
 
 
 
 
 
  1. Describe the impact of each of the following on the consumption function and aggregate demand:
    1. The tanking stock market wipes out 30% of stock market wealth.

      2.  

       
       
       
       
       
       
       
       

    2. Bankruptcy legislation makes it easier to get a credit card after declaring bankruptcy.

      3.  

       
       
       
       
       
       
       

    3. Interest rates fall.

     
     
     
     
     
     
     
     
     
  2. Contrast the views of Keynes with those of the Classical economists about the nature of and remedies for business cycles. Be sure to include the role of wage and price changes.