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 3. a. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, what direction and by how much will the aggregate demand curve initially shift at each price level? (Click to select) by S billion. b. In what direction and by how much will it eventually shift? (Click to select) by S 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 3. a. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, what direction and by how much will the aggregate demand curve initially shift at each price level? (Click to select) by S billion. b. In what direction and by how much will it eventually shift? (Click to select) by S billion.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter24: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 7PA

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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 3. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? The aggregate demand curve will shift_____ by $____ billion. In what direction and by how much will it eventually shift? The aggregate demand curve will shift_____ by $____ billion..
b. Using the model from this chapter, explain the effect on GDP from an increase in G by $5 billion. An increase in spending by $5 billion will add A. directly to Eisposable income by this amount and cause an increase in national income equal to less than $5 billion due to the multiplier effect. O B. directly to aggregate demand by this amount and lead to an eventual change in national income equal to $5 billion times the simple multiplier. O C. indirectly to aggregate demand and cause an eventual change in national income equal to $5 billion. OD. indirectly to disposable income, only a fraction of which (determined by the MPC) will then be spent, ie. national income will change by less than $5 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 3. 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 (Click to select) V by $ billion. b. In what direction and by how much will it eventually shift? Aggregate demand will eventually shift (Click to select) ♥ by $ 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 v by $ |billion. b. In what direction and by how much will it eventually shift? Aggregate demand will eventually shift rightward by $ billion.
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1. 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. If household wealth falls by 5 percent because of declining house values, and the real interest rate falls by 2 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? In what direction and by how much will it eventually shift? LO12.2
Which shows income and consumption levels for period 1 through 7, what is the marginal propensity to consume ?
Which best describes why the multiplier exists? When people spend money, that money ends up in the pockets or bank accounts of other people or organizations, who then use that money in some way. O The multiplier exists because money spent today is always more valuable than money spent in the future, due to inflation and interest rates. When people see the government spending more money, they realize that the government thinks that prices are low; thus, they believe it is a good time to buy things. When people see other people spending money, they know that the economy is about to improve, leading them to spend more money.
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An increase in the value of the simple multiplier can be caused by... O a. An increase in the net tax rate. O b. A decrease in the net tax rate. O c. An increase in the marginal propensity to save. O d. A decrease in the marginal propensity to consume. O e. An increase in the marginal propensity to import. Clear my choice
2. Assuming that the aggregate price level is constant, the interest rate is fixed, and there are no taxes and no foreign trade, what will be the change in GDP if the fol- lowing events occur? a. There is an autonomous increase in consumer spending of $25 billion; the marginal propensity to consume is 2/3. b. Firms reduce investment spending by $40 billion; the marginal propensity to consume is 0.8. c. The government increases its purchases of military equipment by $60 billion; the marginal propensity to consume is 0.6.
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