Macroeconomics Essay Example | Topics and Well Written Essays - 1000 words - 7

Macroeconomics - Essay Exampleexpenditure, thusAnother counselling to reach eqn. (3) is to start from the equilibrium at the market for loanable funds. National saving (S) can be considered to be the supply of loans in the economy and national (gross) investments (I) as demand for the loans. Now,The govt. expenditure multiplier is 1/ (1-c1), as calculated from eqn. (3), where, c1 = MPC. In this example MPC is 0.8. Hence, a 1 bound in govt. expenditure will cosmetic surgery the GDP by 1/ (1-0.8) = 5.Again from the equation (3) we can calculate the tax-cut multiplier to be c1/ (1-c1). In this example, c1 = 0.8 and hence the value of the multiplier will be 0.8/ (1-0.8) = 4. Therefore a 1 cut in the income tax would raise the GDP by the amount of 4 and so a 100 billion of tax cut shall raise the GDP by 4 x 100 million = four hundred million.If now G goes up by 100 million GDP would rise by ergocalciferol million. Again if this increased G is financed by raising T by 100 million, i.e. if T goes up by 100 million, GDP would fall by 400 million. Hence the net effect of this balance budget fiscal stimulus on GDP would be (500 400) million = 100 million, i.e. GDP would rise exactly by the amount spent on the public activities.In an economy in the niggling buy the farm, the prices as well as bribe tend to be sticky. Hence, people often prefer to live unemployed since they cannot get the right wage for their labour. This is the case that determines the natural rate of unemployment. Again, prices in the short run are sticky as well and thus are used to determine the real wages of workers that they consider to maintain a similar standard of living throughout. The wage setting equation is, W/P = w * (P/Pe) and the price setting equation is, p = P + a(Y Y*)ADAS Model is a part of the classical model in economics that considers money to be neutral. According to the quantity hypothesis of money, MV = PY where M = Money Supply, V = Velocity of money