Chapter 3. Problem 2 a. The marginal propensity to save equals: 1-C= 1 - 0.6= 0.4

b. Autonomous planned spending, Ap, equals Ca − cTa + Ip + G + NX = 1,500 − 10r −.6(1,800) + 2,400 − 50r + 2,000 − 200 = 4,620 − 60r. Therefore, at an interest rate equal to 3, autonomous planned spending equals 4,620 − 60(3) = 4,440.

c. Since the marginal propensity to save equals 0.4 and the equilibrium level of income equals Ap /s, the equilibrium level of income equals 4,440/.4 = 11,100, given the interest rate equals 3.

d. Since autonomous consumption changes by four percent of any change in household wealth and the decline in the housing market in 2006–09 and drop in the stock market of 2007/09 reduces household wealth by 3 trillion dollars, the decrease in autonomous consumption that results from the decline in household wealth equals .04(3) = 120 billions.

e. Since the decrease in autonomous consumption that results from the decline in household wealth equals 120 billions, autonomous planned spending decreases by that amount as well. Therefore, the new amount of autonomous planned spending equals 4,440 – 120 = 4,320. Therefore, the new equilibrium level of income equals 4,320/.4 = 10,800, given the interest rate equals 3

f. Since the government expenditure would result in a spending of 1.95 billion in spending with only a autonomous taxes projected at only 1.75 billion the government would again go into deficit by 200 million.

Chapter 4. Problems 1
(11940/4.4) 2713 = .25y – 50r
(11940/4.7) 2540= .25y – 50r
(11940/5.0) 2388= .25y – 50r
(11940/5.3) 2252= .25y – 50r
(11940/5.6) 2132= .25y – 50r
(11940/5.9) 2023= .25y – 50r
(11940/6.2) 1925= .25y – 50r
(11940/4.4) 2713 = .25y – 50r

(12000/4.7) 2553= .25y – 50r
(12000/5.0) 2400= .25y – 50r
(12000/5.3) 2264= .25y – 50r
(12000/5.6) 2142= .25y – 50r
(12000/5.9) 2033= .25y – 50r
(12000/6.2) 1935=