Income and Expenditure — End of Chapter Problem An economy has a marginal propensity to consume of 0.5, and Y*, the income-expenditure equilibrium GDP, equals $500 billion. Given an autonomous increase in planned investment of $10 billion, answer the following questions. a. What is the value of the multiplier? Value of the multiplier = b. What would you expect the total change in Y* to be based on the multiplier formula? Change in Y* based on the multiplier = billion c. What is the total change in real
Income and Expenditure — End of Chapter Problem
An economy has a marginal propensity to consume of 0.5, and Y*, the income-expenditure equilibrium
a. What is the value of the multiplier?
b. What would you expect the total change in Y* to be based on the multiplier formula?
c. What is the total change in real GDP after the 10 rounds?
It may be beneficial to make a table on a separate sheet of paper to calculate the change in real GDP for each of the rounds, and then add up the values.
d. How do your answers to the change in GDP and Y compare?
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