7. Suppose in the Simple Keynesian model that the marginal propensity to consumeis b = 0.75. If both taxes, T, and government spending, G, are increased by $400, thenequilibrium YO decreases by $1,200.increases by $1.600.increases by $400.neither increases nor decreases.none of the other options.

Marginal Propensity to Consume : It is defined as the change in consumption due to the change in…

Answered: 7. Suppose in the Simple Keynesian…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

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Problem 1QTC

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Question 3 of 16 Income and consumption changes for five people are shown in the table. Given this information, rank the marginal propensities to consume (MPC) for the five people from largest to smallest. Largest MPC Smallest MPC Answer Bank Bert Doug Eli Carter Al Name Income change Consumption change Al +$5,000+$5,000 +$3,000+$3,000 Bert +$2,500+$2,500 +$800+$800 Carter +$1,000+$1,000 +$800+$800 Doug −$2,500−$2,500 −$1,750−$1,750 Eli −$5,000−$5,000 −$2,000−$2,000
2. For simplicity, we normally treat aggregate tax payments (T) as determined by politics or other factors unrelated to output. However, suppose that aggregate tax payments are proportional to income. That is, T=t·Y, where tis the marginal tax rate and is between o and 1. a. How, if at all, would this change in our assumptions affect the Keynesian cross diagram? b. Would this change increase, decrease, or have no impact on the multiplier effect, or is it not possible to tell? (That is, how would the effect of a given vertical shift of the planned expenditure line compare with what it was before?)
The partial data in the table below are for the economy of Arinaka. Planned investment, government spending, and all taxes are autonomous. You may assume that the MPC, MPS, and MPM are constant. a. Fill in the blanks in table below, Unplanned Investment Y. YD AE $458 $50 $360 $40 $65 $55 $20 See 45 -5 550 600 b. The value of equilibrium income is $ c. If planned investment decreases by $20, the new value of equilibrium income is $
Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
4. An economy's Planned Aggregate Expenditure (PAE) is given by the formula PAE = 3,400 +0.6Y in terms of its autonomous and induced components respectively, where Y represents output. a. State what is meant by the terms autonomous and induced expenditure b. Given that, under Keynes, the economy is in short term equilibrium where Y-PAE, find the numerical level of short-run output using the above equation. c. If potential output in the same economy is 9,000 draw a Keynesian Cross diagram and label any gap which exists between actual and potential output.
he MPS in an economy is.4, government could shift the aggregate demand curve leftward by $50 billion at each price level by: Multiple Choice a)reducing government expenditures by $125 billion. b)reducing government expenditures by $20 billion. c)increasing taxes by $50 billion. d)increasing taxes by $250 billion.
K Consider the following diagram, in which the current short-run equilibrium is at point A. a. At point A, the economy has an inflationary gap b. If the marginal propensity to consume equals 0.5, to eliminate the gap, the government should decrease spending by $trillion. (Round your answer to two decimal places.) Price Level 122 118 114 LRAS SRAS A 22 22.8 23.6 Real GDP per Year ($ trillion) AD

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