Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy's multiplier is 4. Instructions: Enter your answers as a whole number. a. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 3 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? Aggregate demand will initially shift rightward by $ | billion. b. In what direction and by how much will it eventually shift? Aggregate demand will eventually shift rightward vby $ billion.

Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy's multiplier is 4. Instructions: Enter your answers as a whole number. a. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 3 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? Aggregate demand will initially shift rightward by $ | billion. b. In what direction and by how much will it eventually shift? Aggregate demand will eventually shift rightward vby $ 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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2) Fred has income of $100,000 this year and $120,000 next year. Fred can borrow at an interest rate of 8% or lend at an interest rate of 2%. Draw Fred's budget constraint between spending this year and spending next year labeling all significant points.
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2. If a $440 billion initial increase in spending leads to a S8050 billion change in real GDP, how big is the multiplier?
Suppose that one day your rich aunt unexpectedly gives you $10,000 to use as you like, no strings attached. A fraction of that gift will be consumed (the marginal propensity to consume, MPC) or saved (the marginal propensity to save, MPS). If you are like the "average American," you will save less than 5% of your $10,0002. The money you don't save is consumed and is spent on purchasing goods and services. So, whether you spend the increased income on food, entertainment, paying off loans, or a new bicycle, that money goes back into the economy, where it generates revenue through taxes, and gets spent again. This is because an injection of extra income leads to more spending, which creates more income, and so on. In this way, your money is actually spent many times and it has the effect of stimulating the economy through what is known as the multiplier effect. Gifts from rich aunts are not the only way to stimulate the economy. Governments occasionally provide an economic stimulus by…
The closed economy of Sokovia has a GDP of 150 billion dollars and a marginal propensity to save of 02. In the closed economy of Madripoor the GDP is 160 billion dollars and the marginal propensity to save is 0 25 We can infer that 6. Select one answer: O It takes Sokovia an injection of 10 billion dollars to reach a GDP of 200 billion dollars O The multiplier in Madripoor is 6. O The multiplier in Sokovia is 4. O It takes Madripoor an injection of 12 billion dollars to reach a GDP of 200 billion dollars.
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4. Benjamin's income increases from $40,000 to $44,000. His consumption increases from $35,000 to $36,000. What is Benjamin's Marginal Propensity to Save? A..19 B..75 C. .81 D. 1.25
Quèstion 4 "As disposable income increases, consumption:" O And saving both increase. O Decreases and saving increases. O And saving both decrease. O Increases and saving decreases.
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