Price Level200180160140120100806040200LRASAD,Real GDP (billions of dollars)20 40 60 80 100 120 140 160 180 200billionASInstructions: Enter your answers as a whole number. If you are entering any negative numbers be sure to include a negative sifront of those numbers.billionADa. By what amount has aggregate demand changed?$b. If the marginal propensity to consume is 0.80, what is the expenditures multiplier?c. By how much will Investment demand need to change in order to restore the economy to long-run equilibrium?Investment Demand Curve

Aggregate demand refers to the total amount of goods and services that all buyers in an economy are…

Instructions: Enter your answers as a whole number. If you are entering any negative numbers be sure to include a negat front of those numbers. a. By what amount has aggregate demand changed? $ billion b. If the marginal propensity to consume is 0.80, what is the expenditures multiplier? c. By how much will Investment demand need to change in order to restore the economy to long-run equilibrium? billion

Instructions: Enter your answers as a whole number. If you are entering any negative numbers be sure to include a negat front of those numbers. a. By what amount has aggregate demand changed? $ billion b. If the marginal propensity to consume is 0.80, what is the expenditures multiplier? c. By how much will Investment demand need to change in order to restore the economy to long-run equilibrium? billion

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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5. In an economy, the MPC is 0.5. The graph on the right depicts the economy's aggregate demand curve. Suppose the economy starts out at Point A on the aggregate demand curve. Draw the AE curve for this case. a. b. C. d. Suppose an increase in the price level causes the economy to move to Point B on the aggregate demand curve. Draw the new AE curve. Suppose government spending decreases by $0.2T. Draw the new AD curve. In place of the change in part (c), suppose net taxes decrease by $0.2T. Draw the new AD curve. Price Level (P) 170 160 150 140 130 120 110 100 90 80 70 60 AD 2.6 3.0 3.4 3.8 4.2 4.6 2.8 3.2 3.6 4.0 4.4 4.8 Y (T of $)
Q1) Would you expect the short-run marginal propensity to consume to be different between farmers and government employees? Why or why not? (thorough explanation) P.S. no need for graph.
Question 1. Explain why the Aggregate Demand curve is downward sloping . 2. Explain why the Aggregate Supply curve is upward sloping . 3. What determines potential output Yf, and how can the economy exceed Yf in the short run? 4. Explain the Equilibrium condition of Aggregate Expenditure= output Y. How are inventory changes related to AE and Y? 5. Define the multiplier and the marginal propensities to consume (MPC) and save (MPS). What is the relationship between the MPC and the multiplier? 6. Compare and contrast the short run Keynesian and long run Neoclassical views of the aggregate supply and Phillips curves 7. For each the following economies, calculate equilibrium Y*, the multiplier, and the size of the recessionary or inflationary gap, if any. a. AE= 250 +.75 Y Yf= 1200 b. AE= 400+ .9 Y Yf= 3000 c. AE= 300 +. 8Y Yf=1500 d. AE= 300+ .67 Y Yf=1000
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Explain the determinants of the propensity to consume?!!
Question 3 of 16 Income and consumption changes for five people are shown in the table. Given this information, rank the marginal propensities to consume (MPC) for the five people from largest to smallest. Largest MPC Smallest MPC Answer Bank Bert Doug Eli Carter Al Name Income change Consumption change Al +$5,000+$5,000 +$3,000+$3,000 Bert +$2,500+$2,500 +$800+$800 Carter +$1,000+$1,000 +$800+$800 Doug −$2,500−$2,500 −$1,750−$1,750 Eli −$5,000−$5,000 −$2,000−$2,000
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3. When the following event occurs, the change in Real GDP = Event: The government increases its education funding by $60 billion; the marginal propensity to consume is 0.6. the multiplier.
Macroeconomics: Assuming marginal propensity to consume is 0.5. If there is a shock to the economy that increases investment spending by 200 billion dollars what will the total Change to GDP be? (Ignore taxes and imports)
Explain the effects of the following actions on equilibrium income, assuming that the marginal propensity to consume is 0.8 A. Government purchases rise by $40 billion B. Taxes fall by $40 billion.
d. Now G assumes its original value of G = 800. Congress decreases the tax rate from (1/2) to (1/4). i) Use a model to sketch the effect of the decrease in the tax rate when the price level is held constant. ii) What is the new marginal propensity to consume? iii) Calculate the new equilibrium level of income.
How does the marginal propensity to consume (MPC) determine how GDP responds to policy changes? If we want MPC to be high, what implications does this have for how we should design policies?