2 7. The multiplier and the MPCConsider two closed economies that are identical except for their marginal propensity to consume (MPC). Each economy is currently in equilibrium withreal GDP and aggregate expenditure equal to $100 billion, as shown by the black points on the following two graphs. Neither economy has taxes thatchange with income. The grey lines show the 45-degree line on each graph.The first economy's MPC is O.S. Therefore, its initial aggregate expenditure line has a slope of 0.5 and passes through the point (100, 100).The second economy's MPC is 0.75. Therefore, its initial aggregate expenditure line has a slope of 0.75 and passes through the point (100, 100).Now, suppose there is a decrease of $20 billion in investment in each economy.Place a green line (triangle symbol) on each of the previous graphs to indicate the new aggregate expenditure line for each economy. Then place ablack point (plus symbol) on each graph showing the new level of equilibrium output. (Hint: You can see the slope and vertical axis intercept of a lineon the graph by selecting it.)180140MPC+0.545-Degree LineNew AE Line•+? Aplia Homework: Aggregate DemandAGGREGATE EXPENDITURE (Billions of dollars)200180160120***REAL GDP (Billions of dollars)40 60 80 100 120 140 160 180 200200Multiplier =AE Line0 20MPC=0.5845-Degree Line40 60100 120 140 160 180 200REAL GOP (Billions of dollars)IAGGREGATE EXPENDITURE (Billions of dollars)ÔNew Equilibrium+.New AE LineNew AE LineUsing the same method, the multiplier for the second economy is+New EquilibriumChange in Equilibrium Output Change in Aggregate Expenditure x MultiplierNow, confirm your graphical analysis algebraically using the formula for the simple spending multiplier:-4In the first economy (with MPC-0.5), the $20 billion decrease in investment causes equilibrium output to decrease by S billion. In the secondeconomy (with MPC-0.75), the $20 billion decrease in investment causes equilibrium output to decrease by S billion. Therefore, a lower MPCis associated with amultiplier.45-Degree LineFor the first economy with an MPC of 0.5, the effect of the $20 billion decrease in investment becomes the following:MPC=0.75

7. The multiplier and the MPC Consider two closed economies that are identical except for their marginal propensity to consume (MPC). Each economy is currently in equilibrium with real GDP and aggregate expenditure equal to $100 billion, as shown by the black points on the following two graphs. Neither economy has taxes that change with income. The grey lines show the 45-degree line on each graph. The first economy's MPC is 0.5. Therefore, its initial aggregate expenditure line has a slope of 0.5 and passes through the point (100, 100). The second economy's MPC is 0.75. Therefore, its initial aggregate expenditure line has a slope of 0.75 and passes through the point (100, 100). Now, suppose there is a decrease of $20 billion in investment in each economy. Place a green line (triangle symbol) on each of the previous graphs to indicate the new aggregate expenditure line for each economy. Then place a black point (plus symbol) on each graph showing the new level of equilibrium output. (Hint: You can see the slope and vertical axis intercept of a line on the graph by selecting it.) 140 MPC-0.5 45-Degree Line New AE Line + ?

7. The multiplier and the MPC Consider two closed economies that are identical except for their marginal propensity to consume (MPC). Each economy is currently in equilibrium with real GDP and aggregate expenditure equal to $100 billion, as shown by the black points on the following two graphs. Neither economy has taxes that change with income. The grey lines show the 45-degree line on each graph. The first economy's MPC is 0.5. Therefore, its initial aggregate expenditure line has a slope of 0.5 and passes through the point (100, 100). The second economy's MPC is 0.75. Therefore, its initial aggregate expenditure line has a slope of 0.75 and passes through the point (100, 100). Now, suppose there is a decrease of $20 billion in investment in each economy. Place a green line (triangle symbol) on each of the previous graphs to indicate the new aggregate expenditure line for each economy. Then place a black point (plus symbol) on each graph showing the new level of equilibrium output. (Hint: You can see the slope and vertical axis intercept of a line on the graph by selecting it.) 140 MPC-0.5 45-Degree Line New AE Line + ?

Advanced Engineering Mathematics

10th Edition

ISBN:9780470458365

Author:Erwin Kreyszig

Publisher:Erwin Kreyszig

Chapter2: Second-order Linear Odes

Section: Chapter Questions

Problem 1RQ

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