Consider a hypothetical closed economy in which households spend $0.65 of each additional dollar they earn and save the remaining $0.35. The marginal propensity to consume (MPC) for this economy is 0.65 ▼, and the spending multiplier for this economy is 2.8571 ▼ Suppose the government in this economy decides to increase government purchases by $350 billion. The increase in government purchases will lead to an increase in income, generating an initial change in consumption equal to $500 billion. This increases income yet again, causing a second change in consumption equal to ▼. The total change in demand resulting from the initial change in government spending is The following graph shows the aggregate-demand curve (AD₁) for this economy before the change in government spending. Use the green line (triangle symbol) to plot the new aggregate-demand curve (AD2) after the multiplier effect takes place. For simplicity, assume that there is no "crowding out." Hint: Be sure that the new aggregate-demand curve (AD2) is parallel to the initial aggregate-demand curve (AD1). You can see the slope of AD₁ by selecting it on the graph. 140 135 130 125 AD₁ AD₂ ?

Consider a hypothetical closed economy in which households spend $0.65 of each additional dollar they earn and save the remaining $0.35. The marginal propensity to consume (MPC) for this economy is 0.65 ▼, and the spending multiplier for this economy is 2.8571 ▼ Suppose the government in this economy decides to increase government purchases by $350 billion. The increase in government purchases will lead to an increase in income, generating an initial change in consumption equal to $500 billion. This increases income yet again, causing a second change in consumption equal to ▼. The total change in demand resulting from the initial change in government spending is The following graph shows the aggregate-demand curve (AD₁) for this economy before the change in government spending. Use the green line (triangle symbol) to plot the new aggregate-demand curve (AD2) after the multiplier effect takes place. For simplicity, assume that there is no "crowding out." Hint: Be sure that the new aggregate-demand curve (AD2) is parallel to the initial aggregate-demand curve (AD1). You can see the slope of AD₁ by selecting it on the graph. 140 135 130 125 AD₁ AD₂ ?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. The multiplier effect of a change in government purchases
Consider a hypothetical closed economy in which households spend $0.65 of each additional dollar they earn and save the remaining $0.35.
The marginal propensity to consume (MPC) for this economy is 0.65 ▼, and the spending multiplier for this economy is 2.8571
Suppose the government in this economy decides to increase government purchases by $350 billion. The increase in government purchases will lead
to an increase in income, generating an initial change in consumption equal to $500 billion ▼ This increases income yet again, causing a
second change in consumption equal to
The total change in demand resulting from the initial change in government spending is
The following graph shows the aggregate-demand curve (AD₁) for this economy before the change in government spending.
Use the green line (triangle symbol) to plot the new aggregate-demand curve (AD2) after the multiplier effect takes place. For simplicity, assume that
there is no "crowding out."
Hint: Be sure that the new aggregate-demand curve (AD2) is parallel to the initial aggregate-demand curve (AD1). You can see the slope of AD1 by
selecting it on the graph.
PRICE LEVEL
140
135
130
125
120
115
110
105
100
0
AD₁
1
3
5
4
OUTPUT (Trillions of dollars)
2
6
7
8
AD₂
?

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A manufacturer has been selling 1000 television sets a week at $400 each. A market survey indicates that for each $10 rebate offered to the buyer, the number of sets sold will increase by 100 per week. Round your answers to the nearest dollar. (a) Find the demand function (price as a function of units sold). p(x) = (b) How large a rebate should the company offer the buyer in order to maximize its revenue? $ (c) If the company experiences a cost of C(x) = 77,000+ 130x, how should the manufacturer set the size of the rebate in order to maximize its profit? $
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