MPC-0.75 45-Degree Line 200 180 New AE Line 100 140 120 New Equilibrium 100 80 60 40 AE Line 20 o 20 40 0 80 100 120 140 180 180 200 REAL INCOME (Billins of dollars) In the first economy (with MPC = 0.5), the $20 billion increase in planned investment causes equilibrium income to increase by S second economy (with MPC = 0.75), the $20 billion increase in planned investment causes equilibrium income to increase by S | billion. In the billion. Therefore, a lower MPC is associated with a multiplier. Now, confirm your graphical analysis algebraically using the formula for the multiplier: Multiplier = AC For the first economy with an MPC of 0.5, the effect of the $20 billion increase in planned investment becomes the following: Change in Equilibrium Real Income = Change in Planned Expenditure × Multiplier Using the same method, the multiplier for the second economy is PLANNED EXPENDITURE (Billions of dollars) I| ||||
MPC-0.75 45-Degree Line 200 180 New AE Line 100 140 120 New Equilibrium 100 80 60 40 AE Line 20 o 20 40 0 80 100 120 140 180 180 200 REAL INCOME (Billins of dollars) In the first economy (with MPC = 0.5), the $20 billion increase in planned investment causes equilibrium income to increase by S second economy (with MPC = 0.75), the $20 billion increase in planned investment causes equilibrium income to increase by S | billion. In the billion. Therefore, a lower MPC is associated with a multiplier. Now, confirm your graphical analysis algebraically using the formula for the multiplier: Multiplier = AC For the first economy with an MPC of 0.5, the effect of the $20 billion increase in planned investment becomes the following: Change in Equilibrium Real Income = Change in Planned Expenditure × Multiplier Using the same method, the multiplier for the second economy is PLANNED EXPENDITURE (Billions of dollars) I| ||||
Chapter11: Managing Aggregate Demand: Fiscal Policy
Section11.A: Graphical Treatment Of Taxes And Fiscal Policy
Problem 3TY
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Macroeconomics: Principles and Policy (MindTap Co…
Economics
ISBN:
9781305280601
Author:
William J. Baumol, Alan S. Blinder
Publisher:
Cengage Learning