**5. Expenditure Gaps**The following graph shows the planned expenditure line (AE) for an economy where the current equilibrium income is $350 billion and full-employment income is $100 billion.**Graph Explanation:**- **Axes:** - The horizontal axis represents INCOME in billions of dollars, ranging from 0 to 700. - The vertical axis represents REAL EXPENDITURE in billions of dollars, also ranging from 0 to 700.- **Lines:** - The **45-degree line** (black) represents a situation where expenditure equals income. - The **PE (Planned Expenditure) line** (blue) indicates the current level of planned expenditure in the economy. - A **vertical green line** is marked at the $100 billion income level to indicate full-employment income.**Text Below the Graph:**The economy is experiencing a _________ with the absolute value of the gap equal to $ _________ billion. Closing the income gap would require a $ _________ billion _________ in government spending. Thus, the value of the multiplier for this economy is _________.*Instruction:*On the graph, shift the PE line to show the change in the planned expenditure line necessary to close the income gap.

Aggregate demand refers to the total demand for goods and services in an economy at a given price…

5. Expenditure Gaps The following graph shows the planned expenditure line (AE) for an economy where current equilibrium income is $350 billion and full-employment income is $100 billion. REAL EXPENDITURE (Billions of dollars) 700 600 500 400 300 200 100 Full-Employment Income 0 0 100 500 200 400 INCOME (Billions of dollars) The economy is experiencing would require a $ 300 45-degree line billion 600 PE 700 PE billion. Closing the income gap with the absolute value of the gap equal to $ in government spending. Thus the value of the multiplier for this economy is On the graph, shift the PE line to show the change in the planned expenditure line necessary to close the income gap.

5. Expenditure Gaps The following graph shows the planned expenditure line (AE) for an economy where current equilibrium income is $350 billion and full-employment income is $100 billion. REAL EXPENDITURE (Billions of dollars) 700 600 500 400 300 200 100 Full-Employment Income 0 0 100 500 200 400 INCOME (Billions of dollars) The economy is experiencing would require a $ 300 45-degree line billion 600 PE 700 PE billion. Closing the income gap with the absolute value of the gap equal to $ in government spending. Thus the value of the multiplier for this economy is On the graph, shift the PE line to show the change in the planned expenditure line necessary to close the income gap.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

8
1. Complete this chart. ***Remember, you are looking at the change in income and spending. ( Income $20,000 $40,000 $60,000 $80,000 Expenditures MPC N/A $11,000 $25,000 $35,000 $41,000 MPS N/A
Question 2 Refer to the information provided in Figure 23.9 below to answer the question(s) that follow. Aggregate expenditures ($ millions) 225 200 175 150 45° AE 100 200 300 Aggregate output ($ millions) Figure 23.9 a) Refer to Figure 23.9. Write the equation for the aggregate expenditure function (AE). Show your work. b) Refer to Figure 23.9. What is the equilibrium level of output in this economy? State the equilibrium condition used to determine this. c) Explain the forces that maintain/drive the economy to this equilibrium by considering what will happen at the following two levels of output, $300 million and $100 million. You will need to discuss changes in investment through unplanned inventories and the response of output. d) Refer to Figure 23.9. How will equilibrium aggregate expenditure and equilibrium aggregate output change as a result of a decrease in investment by $20 million? e)The interest rate is an exogenous factor that effects the level of investment in an economy.…
Suppose that an economy consists of only two individuals. Jeremy has $1150 available to spend on goods. He decides to purchase $750 worth of produce from Michele in the current month. No other economic activity takes place during the current month. Using this information, answer the questions. For the current month, what is the economy's income? $ For the current month, what is the economy's expenditure? $ In an economy, how are income and expenditure related? O Income is less than expenditure. Income is greater than expenditure. They are unrelated. O They are equal.
16. Find consumption expenditure from the following National Income =Rs. 5000 Autonomous Consumption = Rs. 1000 Marginal Propensity to Consume = 0.8 %3D
4. Planned expenditure and income The following table shows consumption (C), investment spending (I), and government purchases (G), in a hypothetical economy for various levels of income. Also assume that there is an income tax rate of 25%, that base consumption is $100 billion, and that the MPC is 0.333, or 1/3. This economy is closed, with no international trade, therefore net exports are equal to zero and should not be considered. Use the given information to fill in disposable income, consumption, and planned expenditures in the following table. Income: Real Disposable (After Tax) Planned GDP Income C I, G Expenditures (Billions of (Billions of dollars) (Billions of (Billions of (Billions of (Billions of dollars) dollars) dollars) dollars) dollars) 100 50 150 100 50 150 200 50 150 300 50 150 400 50 150 500 50 150
3. Many parts of the economy are related to one another. In particular, a decrease in spending in one area may have an impact somewhere else. Provide an example of this scenario. Economic theory tells us that "one person's spending is another person's income." What is meant by this phrase? Explain in your own words.
3
The spreadsheet gives real GDP (Y) and its components in billions of dollars. Calculate equilibrium expenditure. Equilibrium expenditure is $ billion. ABCDE 1 YC 234567 A 100 140 80 20 40 30 B 200 220 80 с 300 300 80 D 400 | | 380 80 20 E 500 460 80 F 600 540 80 20 EC222222 F GXM G 20 40 60 20 40 90 40 120 20 40 150 40 180
Question 21 Households change their spending by $10 billion due to a decrease in net wealth. The country's marginal propensity to consume is 0.8. What impact will this have on real GDP? Consumption spending will increase by $10 billion Investment spending will decrease by $50 billion Consumption spending will increase by $50 billion Consumption spending will decrease by $50 billion O Consumption spending will decrease by $10 billion O ooo O
If the economy is currently in equilibrium at point a, and full employment income is $4,000, how much in additional expenditures is needed to move this economy to full employment? $ This level of spending is called the level of spending. Saving and investment 600 400 200 OHA -200 -400 2,000 2,500 3,000 3,500 4,000 Income