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ECO 403 MACROECONOMICS Assignment NO. 2 Discussion and Solution Due Date: 02 February, 2016



Marks 10                                                                               DUE DATE: 02 FEBRUARY, 2016



The Case:

Brazil, an economy in South American region, is growing rapidly. One of the reasons of this growth is exploration of natural resources like gold, iron ore, manganese, nickel, phosphates, platinum, tin, uranium, petroleum, hydropower and many others. Major industries based on these natural resources are promoting business environment which help to create macroeconomic stability. Government of Brazil wants to analyze the macroeconomic stability of the economy. Aggregate expenditures are important part of macroeconomic analysis. Aggregate expenditures of Brazil economy are consisting of expenditures by household, business and government. These expenditures are also known as ‘Planned Expenditures’. It can be denoted in an equation as:

Planned Aggregate Expenditures = AE = C + I + G

Keeping in view the above scenario of Brazil economy where Keynesian cross analysis will apply. Consumption function of Brazil economy is given by an equation:

C = 450 + 0.5(Y-T)


. 0.5 is MPC
. Y represents income = Actual Expenditures
. T shows taxes

We Assume

. Income = Actual Expenditures = Y = 1500
. Planned investment = I = 200
. Government Expenditure = G = 200
. Taxes = T = 200


Keeping in view the above Scenario and given information of Brazil Economy,
Calculate the following:
1. Consumption Level (C)
2. Planned Aggregate Expenditures (AE)
3. Government Purchases Multiplier, if MPC is 0.5
4. Tax Multiplier, if MPC is 0.5

Marks: (2.5+2.5+2.5+2.5)


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