follow instructions on screenshots Consider two closed economies that are identical except for their marginal propensity to consume (MPC). Each economy is currently in equilibrium withreal GDP and aggregate expenditure equal to $100 billion, as shown by the black points on the following two graphs. Neither economy has taxes thatchange with income. The grey lines show the 45-degree line on each graph.The first economy's MPC is 0.5. Therefore, its initial aggregate expenditure line has a slope of 0.5 and passes through the point (100, 100).The second economy's MPC is 0.75. Therefore, its initial aggregate expenditure line has a slope of 0.75 and passes through the point (100, 100).Now, suppose there is an increase of s20 billion in investment in each economy.Place a green line (triangle symbol) on each of the previous graphs to indicate the new aggregate expenditure line for each economy. Then place ablack point (plus symbol) on each graph showing the new level of equilibrium autput. (Hint: You can see the slope and vertical axis intercept of a lineon the graph by selecting it.)MPC=0.520045-Degree Line180New AE Line160140120New Equibrium1008060AE Line4020O 20 40100120140160 180 200REAL GDP (Bilions of dollars)AGGREGATE EXPENDITURE (Billions of dollars) MPC=0.7520045 Degree Line180New AE Line160140120New Equibrium1006040AE Line20204060 80 100 120140 160180 200REAL GDP (Bilions of dollars)In the first economy (with MPC = 0.5), the $20 billion increase in investment causes equilibrium output to increase by Sbillion. In the secondeconomy (with MPC = 0.75), the $20 billion increase in investment causes equilibrium output to increase by Sis associated with abillion. Therefore, a lower MPCmultiplier.AGGREGATE EXPENDITURE (BIlions of doliars)

There are two closed economy countries 1st with 0.5 MPC and $20 billion Increases in Investment2nd…

In the first economy (with MPC = 0.5), the $20 billion increase in investment causes equilibrium output to increase by [S billion. In the second economy (with MPC = 0.75), the $20 billion increase in investment causes equilibrium output to increase by S is associated with a billion. Therefore, a lower MPC multiplier.

In the first economy (with MPC = 0.5), the $20 billion increase in investment causes equilibrium output to increase by [S billion. In the second economy (with MPC = 0.75), the $20 billion increase in investment causes equilibrium output to increase by S is associated with a billion. Therefore, a lower MPC multiplier.

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

follow instructions on screenshots

Consider two closed economies that are identical except for their marginal propensity to consume (MPC). Each economy is currently in equilibrium with
real GDP and aggregate expenditure equal to $100 billion, as shown by the black points on the following two graphs. Neither economy has taxes that
change with income. The grey lines show the 45-degree line on each graph.
The first economy's MPC is 0.5. Therefore, its initial aggregate expenditure line has a slope of 0.5 and passes through the point (100, 100).
The second economy's MPC is 0.75. Therefore, its initial aggregate expenditure line has a slope of 0.75 and passes through the point (100, 100).
Now, suppose there is an increase of s20 billion in investment in each economy.
Place a green line (triangle symbol) on each of the previous graphs to indicate the new aggregate expenditure line for each economy. Then place a
black point (plus symbol) on each graph showing the new level of equilibrium autput. (Hint: You can see the slope and vertical axis intercept of a line
on the graph by selecting it.)
MPC=0.5
200
45-Degree Line
180
New AE Line
160
140
120
New Equibrium
100
80
60
AE Line
40
20
O 20 40
100
120
140
160 180 200
REAL GDP (Bilions of dollars)
AGGREGATE EXPENDITURE (Billions of dollars)

MPC=0.75
200
45 Degree Line
180
New AE Line
160
140
120
New Equibrium
100
60
40
AE Line
20
20
40
60 80 100 120
140 160
180 200
REAL GDP (Bilions of dollars)
In the first economy (with MPC = 0.5), the $20 billion increase in investment causes equilibrium output to increase by S
billion. In the second
economy (with MPC = 0.75), the $20 billion increase in investment causes equilibrium output to increase by S
is associated with a
billion. Therefore, a lower MPC
multiplier.
AGGREGATE EXPENDITURE (BIlions of doliars)

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