Assume a closed economy with no government and a fixed aggregate price level and constant interest rate. Furthermore, assume that the country's consumption function is C = 200 + 0.75YD, where YD is disposable income, and C is consumption, and that planned investment is $75. What will happen if aggregate wealth decreases by $100, all else equal? a. The aggregate spending line will shift downward. b. The income–expenditure equilibrium real GDP will increase by more than $100. c. There will be no multiplier effect on real GDP, since there is a drop in aggregate wealth. d. Planned investment will increase.

Assume a closed economy with no government and a fixed aggregate price level and constant interest rate. Furthermore, assume that the country's consumption function is C = 200 + 0.75YD, where YD is disposable income, and C is consumption, and that planned investment is $75. What will happen if aggregate wealth decreases by $100, all else equal? a. The aggregate spending line will shift downward. b. The income–expenditure equilibrium real GDP will increase by more than $100. c. There will be no multiplier effect on real GDP, since there is a drop in aggregate wealth. d. Planned investment will increase.

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter8: The Keynesian Model

Section: Chapter Questions

Problem 9SQP

See similar textbooks

Related questions

Q: What is the marginal propensity to consume in Freedonia, and what is the marginal propensity to…

A: The aggregate expenditure is the sum of consumption investment and the government expenditure. The…

Q: Consider a simple economy in which investment is constant and equal to $100 billion. There is no…

A: Since you have asked a question with multiple sub-parts, we will solve the first three sub-parts for…

Q: QUESTION 12 A country is closed. It has no government sector, and its aggregate price levels and…

A: The equation Y = C + I + G + NX tells us that aggregate output (or aggregate income) is equal to…

Q: The table shows disposable income and consumption expenditure in an economy. Calculate saving when…

A: disposable income: Total personal income less personal current taxes equals disposable income.…

Q: In an economy, consumers spend 800 million regardless of their level of disposable income. In…

A: Meaning of Aggregate Demand Function: The effective elements in the determination of the level of…

Q: a. Calculate the missing values in the table below given that the Aggregate Consumption Function for…

A: In Keynesian macroeconomics theory, aggregate demand plays a very important role because in…

Q: by equa a. Suppose the government increases both taxes (7) and government purchase (Y) is fixed by…

A: The Marginal Propensity to Consume (MPC) is a concept in economics that represents the proportion of…

Q: In an economy with no government and no trade, autonomous consumption is £200 and planned investment…

A: Autonomous consumption = £200 Planned investment spending = £100 MPC= 0.7

Q: Given the following table. Income (RM million) Consumption (RM million) 0 100 100 150 200…

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: A country is closed. It has no government sector, and its aggregate price levels and interest rates…

A: The equation Y = C + I + G + NX tells us that aggregate output (or aggregate income) is equal to…

Q: You are given the following data concerning Freedonia, a leg- endary country: (1) Consumption…

A: Since you have posted a question with multiple sub-parts ,we will solve first three sub-parts for…

Q: 16. Consider a closed economy with demand for goods as follows: • yd = C +I+ G C = 200 + 0.80(Y – T)…

A: “Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for…

Q: Consider an economy in which autonomous consumption, planned autonomous investment, autonomous…

A: The GDP is $19000 and the MPC is 0.75. So, consumption will be: Consumption =GDP×MPCConsumption…

Q: Explain how each of the following actions will affect the level of planned investment spending and…

A: The correct answer is given in the second step.

Q: What would be the level of saving if the real GDP (Y) were at $7 trillion? what is the level of…

A: Equilibrium is established where aggregate expenditure becomes equal to the output.

Q: Assume that total expenditure E comprises the sum of government consumption, G, household…

A: The objective of the question is to understand the impact of higher government spending with…

Q: If autonomous consumption is 400 and the multiplier is 4, the saving function is equal to * O S= 400…

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: aggregate planned expenditure

A: National income is a measure of the total cost of all items and offerings produced using the…

Q: Aggregate Expenditures and Multipliers Assignment a. Using the aggregate expenditure function…

A: Answer: (a). The current level of real GDP is that where the 45-degree line and the aggregate…

Q: Suppose the aggregate consumption function is represented by C = £1,000 + 0.5*YD, where YD is…

A: Given:- Consumption; C=£1000+0.5YD where; C= Consumption function YD= Disposable Income At…

Q: Keynesian cross model, assume that the consumption function

Q: An economy has a marginal propensity to consume of 0.5, and Y*, the income-expenditure equilibrium…

A: Given information: The marginal propensity to consume is 0.5 i.e., MPC = 0.5 The equal level of real…

Q: 1a. If the consumption function is C = 250 + 0.57Y and investment, I = RM450, calculate the…

A: equilibrium income level is the point where goods market's Aggregate demand and aggregate supply are…

Q: Why is saving called a leakage? Why is planned investment called an injection? Why must saving equal…

A: Saving is a leakage because it is a leakage from the flow of aggregate consumption expenditure…

Q: Suppose the consumption function is given by C = 100 + 0.8YD and that I = 50, while G=200, TR=62.5…

A: Given,

Question

a. The aggregate spending line will shift downward.

b. The income–expenditure equilibrium real GDP will increase by more than $100.

c. There will be no multiplier effect on real GDP, since there is a drop in aggregate wealth.

d. Planned investment will increase.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

QUESTION 12 A country is closed. It has no government sector, and its aggregate price levels and interest rates are fixed. Furthermore, the marginal propensity to consume is constant and the country's consumption function is as follows: C = 200 + 0.75 YD, where YD is disposable income and C is consumption. Assume that planned investment equals 75. What is the income–expenditure equilibrium for this country? a. $1,100 b. $900 c. $200 d. $275 QUESTION 13 A reduction in the value of a currency that is determined under a floating exchange rate regime is a(n): a. devaluation. b. appreciation. c. revaluation. d. depreciation.
Suppose the aggregate consumption function is represented by C = £1,000 + 0.5*YD, where YD is disposable income, and there are no taxes or transfers. Using the income-expenditure model, what increase in autonomous consumption must occur for equilibrium output to increase by £1,000? Select one: a. £200 b. £500 c. £100 d. £250
6. You are given the following data concerning Freedonia, a leg- endary country: (1) Consumption function: C = 200 + 0.8Y (2) Investment function: I = 100 (3) AE = C + I (4) AE = Y a. What is the marginal propensity to consume in Freedonia, and what is the marginal propensity to save? b. Graph equations (3) and (4) and solve for equilibrium income. C. Suppose equation (2) is changed to (2´) I = 110. What is the new equilibrium level of income? By how much does the $10 increase in planned investment change equilibrium income? What is the value of the multiplier?
An economy has a marginal propensity to consume of 0.5, and Y*, the income-expenditure equilibrium GDP, equals $500 billion. Given an autonomous increase in planned investment of $10 billion, answer the following questions. a. What is the value of the multiplier? Value of the multiplier = b. What would you expect the total change in Y* to be based on the multiplier formula? Change in Y* based on the multiplier = billion c. What is the total change in real GDP after the 10 rounds? It may be beneficial to make a table on a separate sheet of paper to calculate the change in real GDP for each of the rounds, and then add up the values. Total change in real GDP (10 rounds) =
Aggregate Expenditures and Multipliers Assignment a. Using the aggregate expenditure function above, what is the current level of real GDP? b. Using the aggregate expenditure function above, what would be the level of real GDP if the aggregate expenditure function shifted up by $0.2T? c. If Investment expenditures increase by $300B and MPC is equal to 0.90, what will be the increase in real GDP? d. If Government expenditures increase by $800B and MPS is equal to 0.05, what will be the increase in real GDP?
16. Consider a closed economy with demand for goods as follows: yd = C +I+ G C = 200 + 0.80(Y – T) I = 600 G = 1000 T = 1000 a. What is "autonomous expenditure" for this economy? b. Graph this economy's (planned) aggregate expenditure function. Be sure to give the coordinates of at least 2 distinct points in your graph. c. According to the Keynesian Cross model of income determination, what would be the short run equilibrium value of real aggregate income (Y) for this economy? d. If government purchases (G) were to increase to 1,200, what would the new short run equilibrium value of income be? etv MacBook Air 80 888 DII F3 F4 F5 F6 F7 F8 F9 F10 F11 F12 # $ % & ) + 3 4 6 7 8 9 %3D de E Y U P { } [ D F G H J K L + I| ....
a. Suppose the government increases both taxes (7) and government purchases (G) by equal amounts. Assuming income (Y) is fixed by the factors of production, the change in national saving (AS) will be (MPC-1) * AT. (1-MPC) x AT. b. The larger is the MPC (the closer it is to 1), the will be the increase in the interest rate. will be the decline in investment, and the
Consider a simple economy in which investment is constant and equal to $100 billion. There is no government or foreign sector, and the price level is constant. Consumption is C= $40 billion - 0.75Y What is the value of the marginal propensity to consume? what is consumption at an output of $1,000 bllion? a. c. What is the equilibrium GDP in this model? d. What is the value of the multiplier? e. What happens to equilibrium GDP should investment demand fall to S80 billion?
Given, autonomous consumption Co = a = 4.0, marginal propensity to consume MPC = 0.80, investment | = 8.5, government expenditure G = 9.0, exports X = 1.5, imports M = 0.75, and taxes T = 0 ($, billion): i. What is the level of consumption and saving if income is 10.0? ii. What is the equilibrium output level YE (assume this is real GDP) for the economy?
Q4. In the Keynesian cross model, assume that the consumption function is given byC=120+0.8(Y-T).Planned investment is 200; government purchases and taxes are both 400.a. Graph planned expenditure as a function of income.b. What is the equilibrium level of income?c. If government purchases increase to 420, what is the new equilibrium income? What is the multiplier for government purchases?d. What level of government purchases is needed to achieve an income of 2,400? (Taxes remain at 400.)e. What level of taxes is needed to achieve an income of 2,400? (Government purchases remain at 400.)
. Consider an economy in which autonomous consumption, planned autonomous investment, autonomous government expenditure, autonomous taxes, and the marginal propensity to consume are given (there are no net exports). Autonomous consumer spending = $3,000 Ip = $5,000 G = $3,000 T = $4,000 MPC = .75 What is the level of actual investment [Actual investment includes both planned and unplanned inventory changes. Hint: Compare Y and C + I + G at the level of income in part (a)] if Y = $19,000? What is the level of unintended or unplanned inventory investment?
c,d,e,f