Consider a hypothetical economy. Households spend $0.90 of each additional dollar they earn and save the remaining $0.10. The multiplier for this economy is . Suppose government purchases, G, in this economy decrease by $150 billion. The decrease in G will lead to a decrease in income, generating a decrease in consumption that decreases 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 = −$150 billionFirst Change in Consumption = billion Second Change in Consumption = billion • •• •• •Total Change in Income = billion 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 -$150 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 Homework (The Keynesian Cross)Consider a hypothetical economy. Households spend $0.90 of each additional dollar they earn and save the remaining $0.10. The multiplier for thiseconomy isSuppose government purchases, G, in this economy decrease by $150 billion. The decrease in G will lead to a decrease in income, generating adecrease in consumption that decreases 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 = -$150 billionFirst Change in ConsumptionSecond Change in ConsumptionTotal Change in Income= $= $=billionbillionbillionNow consider the impact of a similar change in taxes. The (absolute value) of the tax multiplier in this question will bechange by -$150 billion, spending will change by $billion.Based on your results, this Keynesian model predicts that a change ininitial change in planned expenditures is of the same magnitude.; thus, if taxeswill have the larger effect on income, given the

The total of net exports, government spending, investment spending, and consumption spending is known as aggregate expenditure. The multiplier indicates how many units the economy's equilibrium income will rise if autonomous spending increases by one unit. Part-1) Households spend $0.90 of every $1 they earn.This means that MPC (Marginal propensity to consume) = 0.90And MPS (Marginal propensity to save) = 0.10Multiplier = 1 / 1 - MPC= 1 / 1 - 0.90= 1 / 0.10= 10 / 1= 10The multiplier for this economy is = 10Part-2: Change in G = -$150 BillionThe first change in consumption can be calculated as follows:First change in consumption = 0.90 * -150 = -$135 billion The second change in consumption can be calculated as follows: Second change in consumption = -135 × 0.90 = -$121.50 billion Total Change in Income = -$150 * multiplier= -$150 * 10= -$1500 BillionTotal income would decline by $1500 Billion.Part-3:- Absolute value of tax multiplier can be calculated as follows: Absolute value of tax multiplier = MPC / MPS= 0.90 / 0.10= 9Change in spending can be calculated as follows:Change in spending= -150 × 9 = -$1,350 billion So, Spending will change in -$1350 Billion. Thus, the change in government spending will have the large effect on income.Final answer:- Part-1) Consider a hypothetical economy. Households spend $0.90 of each additional dollar they earn and save the remaining $0.10. The multiplier for this economy is 10.Part-2) First change in consumption = -$135 billion Second change in consumption = -$121.50 billion.Total change in income = -$1500 billion. Part-3) Now consider the impact of a similar change in taxes. The (absolute value) of the tax multiplier in this question will be 9 ; thus, if taxes change by -$150 billion, spending will change by -$1350 billion. Based on your results, this Keynesian model predicts that a change in government spending will have the larger effect on income, given the initial change in planned expenditures is of the same magnitude.