Consider a hypothetical economy. Households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The multiplier for this economy is . Suppose government purchases, G, in this economy increase by $300 billion. The increase in G will lead to an increase in income, generating an increase in consumption that increases income yet again, and so on. Fill in the following table to show the impact of the change in G on the first two rounds of consumption spending and, eventually, on national income. Note: Use negative signs if numbers are negative. Change in G = $300 billion First Change in Consumption = billion
Consider a hypothetical economy. Households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The multiplier for this economy is . Suppose government purchases, G, in this economy increase by $300 billion. The increase in G will lead to an increase in income, generating an increase in consumption that increases income yet again, and so on. Fill in the following table to show the impact of the change in G on the first two rounds of consumption spending and, eventually, on national income. Note: Use negative signs if numbers are negative. Change in G = $300 billion First Change in Consumption = billion
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Consider a hypothetical economy. Households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The multiplier for this economy is
.
Suppose government purchases, G, in this economy increase by $300 billion. The increase in G will lead to an increase in income, generating an increase in consumption that increases income yet again, and so on.
Fill in the following table to show the impact of the change in G on the first two rounds of consumption spending and, eventually, on national income .
Note: Use negative signs if numbers are negative.
| Change in G | = | $300 billion |
| First Change in Consumption | = |
|
| Second Change in Consumption | = |
|
| • | • | |
| • | • | |
| • | • | |
| Total Change in Income | = |
|
Now consider the impact of a similar change in taxes. The (absolute value) of the tax multiplier in this question will be
; thus, if taxes change by $300 billion, spending will change by
billion.
Based on your results, this Keynesian model predicts that a change in will have the larger effect on income, given the initial change in planned expenditures is of the same magnitude.
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!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
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.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education