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Define the term multiplier effect (accelerator principle)?
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- Suppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (AD₁). Suppose now that the government increases its purchases by $3.5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2) is parallel to AD₁. You can see the slope of AD₁ by selecting it on the following graph. PRICE LEVEL 116 114 112 110 108 106 104 102 100 100 AD1 102 106 108 110 OUTPUT (Billions of dollars) 104 112 114 1 116 AD2 AD 3 ?Complete the following table by completing the multiplier for each MPC listed MPC - 0.17 MPC - 0.28Is the relationship between changes in spending and changes in real GDP in the multiplier effect a direction (positive) relationship or is it an inverse (negative) relation- ship?
- Which of the following has the largest multiplier asssociated with it? A) MPC = 0.6 B) MPC = 0.8 C) MPC = 0.9 D) MPC = 0.7Which of the following is a true statement about the multiplier? The multiplier rises as the MPC rises. The smaller the MPC, the larger the multiplier. The multiplier is a value between zero and one. The multiplier effect does not occur when autonomous expenditure decreases.In economics, the multiplier effect refers to the fact that when there is an injection of money to consumers, the consumers spend a certain percentage of it. That amount recirculates through the economy and adds additional income, which comes back to the consumers and of which they spend the same percentage. This process repeats indefinitely, circulating additional money through the economy. Suppose that in order to stimulate the economy, the government institutes a tax cut of $16 billion. If taxpayers are known to save 7% of any additional money they receive, and to spend 93%, how much total money (T) will be circulated through the economy by that single $16 billion tax cut? (Enter your answer rounded to the nearest whole number.) T≈ billion dollars
- Consider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The following graph shows the economy's initial aggregate demand curve (AD₂). Suppose the government increases its purchases by $5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD) is parallel to AD. You can see the slope of AD, by selecting it on the following graph. 118 114 112 110 108 106 104 102 100 H 100 105 110 115 120 125 130 135 140 OUTPUT (Bloof dollar) 15.0 The following graph shows the money market in equilibrium at an interest rate of 7.5% and a quantity of money equal to $45 billion. 10.0 401 Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. 7.5 25 0 15 Money Supply Morey Demand 30 45 60 MONEY (Billens of…There might be many factors (economic and non-economic) that affect the size of the multiplier. What are some that you think could influence its size? Which ones do you think would make it larger, and which are more likely to make it smaller?What is the multiplier effect? The multiplier is simply the ratio of the change in (r spending. Multiplying the initial change in spending by the multiplier gives you the amount of change in real GDP. G ) to the initial change in The multiplier effect can work in a positive or a negative direction. An initial increase in spending will result in a (smaller, larger) increase in real GDP, and an initial decrease in spending will result in a larger (increase, decrease ) in real GDP. The multiplier magnifies the fluctuations in economic activity initiated by changes in investment spending, net exports, government spending, or consumption spending. The multiplier is related to the marginal propensities. The MPC is (directly, inversely ) related to the size of the multiplier. The MPS is (directly, inversely ) related to the size of the multiplier. What will multiplier and MPS be when the MPC is .9, and 0.5? MPC MPS Multiplier .9 .5 How much of a change in GDP will result if firms increase…
- Assuming that the MPC is 0.80, calculate the value of the government expenditures multiplier.Suppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (AD₁). Suppose now that the government increases its purchases by $3.5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2) is parallel to AD₁. You can see the slope of AD₁ by selecting it on the following graph. PRICE LEVEL 110 114 112 110 108 108 104 102 100 AD. 100 9 102 104 108 108 110 112 114 118 OUTPUT (Billions of dollars) ง AD₂ $ AD₂ The following graph plots equilibrium in the money market at an interest rate of 1.5% and a quantity of money equal to $45 billion.You are given the following information for the economy of Datalink: C = 250 + 0.85Yd T = 150 + 0.5Y I = 280 G = 400 X = 600 M = 100 - 0.125Y Determine the equilibrium level of income. What is the value of the multiplier? What is the level of consumption, government revenue and imports at the equilibrium level of income? If the government wishes to increase the equilibrium level of income by 200 to close a deflationary gap, by how much must government spending rise to achieve this? What is the government’s budget stance? Produce a sketch of your answers in (i) and (iv) above. Assume that this hypothetical economy is experiencing a severe recession, by how much would government spending have to increase to shift the aggregate demand curve rightward by GH¢ 2500. How large a tax cut would be needed to achieve this same increase in equilibrium income? Why does the tax cut not have the same effect as the increase in government spending?