Suppose a closed economy with no government spending or taxing is capable of producing an output of $3,000 at full employment. Suppose also that autonomous consumption is $400, intended investment is $200, and on average households will save 25 cents of every additional dollar of income they receive. Calculate the following (express your answers as whole numbers without decimals, commas, dollar signs, or anything else). Multiplier: Value of output (Y) in equilibrium: Total consumption in equilibrium

Suppose a closed economy with no government spending or taxing is capable of producing an output of $3,000 at full employment. Suppose also that autonomous consumption is $400, intended investment is $200, and on average households will save 25 cents of every additional dollar of income they receive. Calculate the following (express your answers as whole numbers without decimals, commas, dollar signs, or anything else). Multiplier: Value of output (Y) in equilibrium: Total consumption in equilibrium

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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…
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 total 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 total expenditure line has a slope of 0.5 and passes through the point (100, 100). The second economy's MPC is 0.70. Therefore, its initial total expenditure line has a slope of 0.70 and passes through the point (100, 100). Now, suppose there is an increase of $30 billion in investment in each economy. Place a green line (triangle symbol) on each of the previous graphs to indicate the new total expenditure line for each economy. Then place a black point (plus symbol) on each graph showing the new level of equilibrium output.
1. Graphing the consumption function from the MPC Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.50. That is, if disposable income increases by $1, consumption increases by 50¢. Suppose further that last year disposable income in the economy was $450 billion and consumption was $350 billion. On the following graph, use the blue line (circle symbol) to plot this economy's consumption function based on these data. CONSUMPTION (Billions of dollars) 700 600 500 400 300 200 100 0 -100 0 100 200 300 400 500 600 DISPOSABLE INCOME (Billions of dollars) 700 800 (?) From the preceding data, you know that the level of saving in the economy last year was $ economy is billion and the marginal propensity to save in this Suppose that this year, disposable income is projected to be $550 billion. Based on your analysis, you would expect consumption to be S billion and saving to be $ billion.
Suppose that investment demand increases by $100. Assume that households have a marginal propensity to consume of 80 percent. Compute the first three rounds of multiplier effects as follows: a) What are the first cycle changes in spending? Total cumulative change equals? b) What are the second cycle changes in spending? Total cumulative change equals? c) What are the third cycle changes in spending? Total cumulative change equals?
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.
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The autonomous consumption expenditures and autonomous investment expenditures in an economy are $600 and $350, respectively. It is also observed that individuals spend 70% of their additional income on consumption. Write down the consumption function for this economy using the information provided above. (Round your response for the intercept term to the nearest whole number and for the slope term to one decimal place.) C . +..Y Write down the aggregate expenditure function for this economy using the information provided above. (Round your response for the intercept term to the nearest whole number and for the slope term to one decimal place.) AE =..+..Y •.. The equilibrium income that would set the actual national income to the desired aggregate expenditure is $. (Round your response to the nearest dollar.) If the actual national income were $1,584 in this economy, then the inventories of the firms would be failing or rising and firms would reduce or increase their output.
Using the table below to answer the following questions. Assume all values represent trillions of dollars. Construct a graph of the Aggregate planned expenditure What is the equilibrium expenditure? Explain what happens at a real GDP of $4 trillion dollars. (Note the aggregate expenditures and the effects on inventories) What are your total autonomous expenditures? What is the marginal propensity to consume? Ignoring imports and income taxes, what is the multiplier? If investment increases by $1.5 trillion, what is the change in real GDP?
The following table shows consumption (C), investment spending (I), and government purchases (G), for some hypothetical economy at several levels of income (reported in billions of dollars of real GDP). Assume that in this economy, income is taxed at a rate of 25%, base consumption is $50 billion, and that the marginal propensity to consume (MPC) is 0.667, or 2/3. Further assume that this economy is closed, that is, there is no international trade and so net exports are always equal to zero. Use the given information to fill in disposable income, consumption, and planned expenditures in the following table. Income: Real GDP Disposable (After Tax) Income C Ip G Planned Expenditures (Billions of dollars) (Billions of dollars) (Billions of dollars) (Billions of dollars) (Billions of dollars) (Billions of dollars) 0 0 50 100 50 100 100 50 200 100 50 300 100 50 400 100 50 500 100 50…
Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.50. That is, if disposable income increases by $1, consumption increases by 50c. Suppose further that last year disposable income in the economy was $400 billion and consumption was $350 billion. On the following graph, use the blue line (arcle symbol) to pict this economy's consumption function based on these data. CONSUMPTION (Bions of dollars) ) 700 600 500 400 300 200 100 0 -100 9 100 200 300 400 500 000 DISPOSABLE INCOME (Billions of dollars) 700 000 From the preceding data, you know that the level of savings in the economy last year was 3 economy is billion and the marginal propensity to save in this Suppose that this year, disposable income is projected to be $600 billion. Based on your analysis, you would expect consumption to be 3 billion and savings to be S billion,
Assume that, without taxes, the consumption schedule for an economy is as shown in the table below. Impose a progressive tax such that the tax rate is 0 percent when GDP is $100, 5 percent at $200, 10 percent at $300, 15 percent at $400, and so forth. Determine the new consumption schedule, noting the effect of this tax system on the MPC (tax inclusive) and the multiplier.Instructions: In the table below, enter your answers (except the MPC) as whole numbers. For the MPC, round your answers to 2 decimal places. see the picture to understand :) PS. it's the yellow thing
2. The consumption function Consider a country with the national income of $12 billion, the amount of taxes paid by households of $3 billion, and household consumption of $7 billion. Suppose that the marginal propensity to consume (MPC) is 0.75. On the following graph, use the blue line (circle symbol) to plot the economy's consumption function. Hint: You should plot the first point where household consumption equals $7 billion. Then, plot the second point when real disposable income rises by $4 billion. REAL CONSUMPTION (Billions of dollars) 20 18 16 + 14 12 10 0 0 2 4 6 8 10 12 14 16 18 20 REAL DISPOSABLE INCOME (Billions of dollars) -0 O $7.75 billion O $9.75 billion O $7.5 billion O $10.75 billion Consumption Function (?) Suppose now that country's national income increases to $13 billion. Assuming the amount paid in taxes is fixed at $3 billion and MPC= 0.75, what will be the new household consumption?