Income Leakages

							          MBA 6410 - The Simple Keynesian Model in Gordon's Chapter 3
          SOLUTION TO PROBLEM ON FIRST MIDTERM
          READ ME FIRST - PLACE CURSOR IN CELL B3 TO READ NOTES ON THIS MODEL
          Exogenous variables                                                       a                    c          To           t       Io      Go      NXo       nx
          Given                                                                  2000                  0.8        1000        0.2     4000     4000      650     0.05
24024     Y = C + I +G+NX
16576     C = a + cYd                                                                                         Equilibrium in Simple Keynesian Model
18220     Yd = Y-R
  5805    R=To+tY
  1644    S=-a + sYd                                                                                30000




                                                             Planned Expenditures; Induced Saving
    0.2   s=1-c
  4000    Ip = Io                                                                                   25000
  4000    G = Go
-551.2    NX = NXo-nxY                                                                              20000
   0.41   MLR = s(1-t)+t+nx




                                                                      ($billions per year)
 2.439    k = 1/(s(1-t)+t+nx)
  9850    Induced leakages=sYd+tY+nxY = [s(1-t) + t + nx]Y
                                                                                                    15000
  9850    Ap = (a-cTo)+Io+Go+NXo
24024     Ep = Ap + c(1-t)Y -nxY                                                                    10000
  8650    Leakages = S + R + Imports
  8650    Injections = I + G + NXo                                                                   5000
  1805    Government Surplus R-G
  1805    (I+NX)-S                                                                                        0
                                                                                                              0           5000       10000      15000      20000        25000   30000
                                                                                                                         Real Income (GDP = Y) ($billions per year)

                                                                                                    Ap         Induced leakages               E=Y        Ep (Planned Expenditures)

                                                                                                                    Y          0     30000           Y      0   30000
          Used to draw relevant curves:                                                                            Ap       9850      9850           E      0   30000
                                                                                                                    Y          0     30000           Y      0   30000
                                                                                                    Induced Leakages           0     12300          Ep   9850   27550