20 20 45° line 16 AE 2 Aggregate expenditure (trillions of 2009 dollars) ∞ 4 ° 12 16 Real GDP (trillions of 2009 dollars) 4 8 1. The above figure shows the AE curve and 45° line for an economy. a. If real GDP equals $8 trillion, how do firms' inventories compare to their planned inventories? b. If real GDP equals $16 trillion, how do firms' inventories compare to their planned inventories? c. What is the equilibrium level of expenditure? Why is this amount the equilibrium? 2. Suppose the MPC is 0.75. a. If there are no imports or taxes what is the multiplier? b. If there is an increase in government spending of $10billion, how much does equilibrium expenditure increase by? c. Now suppose the tax rate is 15% and the MPM is .1, what is the multiplier?
20 20 45° line 16 AE 2 Aggregate expenditure (trillions of 2009 dollars) ∞ 4 ° 12 16 Real GDP (trillions of 2009 dollars) 4 8 1. The above figure shows the AE curve and 45° line for an economy. a. If real GDP equals $8 trillion, how do firms' inventories compare to their planned inventories? b. If real GDP equals $16 trillion, how do firms' inventories compare to their planned inventories? c. What is the equilibrium level of expenditure? Why is this amount the equilibrium? 2. Suppose the MPC is 0.75. a. If there are no imports or taxes what is the multiplier? b. If there is an increase in government spending of $10billion, how much does equilibrium expenditure increase by? c. Now suppose the tax rate is 15% and the MPM is .1, what is the multiplier?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:20
20
45° line
16
AE
2
Aggregate expenditure (trillions of 2009 dollars)
∞
4
°
12
16
Real GDP (trillions of 2009 dollars)
4
8
1. The above figure shows the AE curve and 45° line for an economy.
a. If real GDP equals $8 trillion, how do firms' inventories compare to
their planned inventories?
b. If real GDP equals $16 trillion, how do firms' inventories compare to
their planned inventories?
c. What is the equilibrium level of expenditure? Why is this amount the
equilibrium?
2. Suppose the MPC is 0.75.
a. If there are no imports or taxes what is the multiplier?
b. If there is an increase in government spending of $10billion, how much
does equilibrium expenditure increase by?
c. Now suppose the tax rate is 15% and the MPM is .1, what is the
multiplier?
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