İKTİSADA GİRİŞ II

Interest rate is the factor that ensures the saving and investment equality in the equilibrium.

The existence of long term wage contracts is one of the factors that prevent full competitive conditions to be present in labor market.

Aggregate demand is the main factor that determines the equilibrium level of income in the short-run.

Money supply is not a type of expenditure.

If there is an excess demand in the economy, stocks decrease while production increases.

45 degree line also represents the aggregate supply in the short-run.

In the saving paradox phonomenon, income level decreases as a result of increasing saving.

Multiplier = 1/(0,35+0,15) = 2

Change in income = multiplier x change in expenditures

Change in income = 3 x 300 = 900.

If we rewrite our aggregate expenditure function for an open economy, we get:
AE = C + I + G + NX. According to equation, aggregate expenditures (AE) are the sum of consumption expenditures (C), investment expenditures (I), government expenditures (G) and net exports (NX).

AE=C+I+G+NX fpr an open economy. So from this equaiton we calculate consumption is equal to 1000 where AE is equal to 2600.

Leakages are used to denote reductions in autonomous components of aggregate expenditures. It is possible to mention three types of leakages from the income-expenditure flow: savings, taxes and imports for an open economy.

Since the total leakages is qeaul to S+T+IM, when income level is 4000, it is equal to 1300.

Considering above indicated values, if MPC is 0.70 and MPI is 0.10, we can calculate MPC – MPI = 0.70 – 0.10 = 0.60 for domestically produced goods and services. This shows us that 60 per cent of the change in the income will be spent on goods and services produced in the country. The income increase of 100 TL at the beginning rises the consumption expenditures for domestically produced goods and services by 60 TL (100 x 0.60).

Since marginal propensity to save is 0.30, 30 TL of 100 TL income increase is reserved for saving (100 x 0.30).

The income increase of 100 TL at the beginning rises the consumption expenditures for domestically produced goods and services by 60 TL (100 x 0.60). Since marginal propensity to save is 0.30, 30 TL of 100 TL income increase is reserved for saving (100 x 0.30). The remaining 10 TL is for imported goods (100 x 0.10).

Since multiplier= 1/(MPS+MPI)=1/ (0.3+0.1)= 1/0.4= 2.5

Based on this value, we find that 100 TL increase in the initial expenditure level leads to an increase of 2.5 times in GDP, that is, an increase of 250 TL (2.5 x 100).

=1/(0.3+0.1)*400= 1000

This result shows us that the increase in autonomous expenditure of 400 TL will lead to an
income increase of 2.5 times and create a growth of 1000 TL in GDP.

Since;

 

The multiplier by writing the same formula in terms of MPC as: Multiplier=1/(1-MPS)

If MPS=0.20 then the multiplier is equal to 1/(1-0.20) = 1/0.8 = 1.25

The answer is B.