Suppose that the marginal propensity to consume is 0.8, and investment spendingincreases by $100 billion. The increase in aggregate demand is:a)b)$125 billion, composed of $100 billion in investment spending and $25billion in consumption.$500 billion, composed of $100 billion in investment spending and $400billion in consumption.c) $100 billion, the amount of investment spending.d)$80 billion, composed of $100 billion in investment spending and a decreasein consumption of $20 billion.

The marginal propensity to consume (MPC) is the fraction of additional income that a consumer spends…

Answered: Suppose that the marginal propensity to…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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If national income increases by $20 million and consumption increases by $5 million, the marginal propensity to consume is A) 4. B) 0.75. C) 0.5. D) 0.25.
True or false: The slope of the consumption function is the marginal propensity to consume (MPC). Assume the marginal propensity to consume (MPC) is .8. Suppose real disposable income increases by $1000. Solve for the change in consumption. Assume again that the marginal propensity to consume (MPC) is .8. What must be the marginal propensity to save (MPS)? Assume that the marginal propensity to consume (MPC) is .9. Solve for the value of the "simple spending multiplier." Using the value of MPC and the value of the "simple spending multiplier" in question 10, introduce an increase in investment of $1000. Solve for the change in real GDP that results.
If the recessionary gap is $ 200 billion and the multiplier is 2, what is the increase in aggregate spending needed to bring the economy to full employment? a)$300 billion b)$ 600 billion c)$200 billion d) $66.6 billion
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The consumption function macroeconomics is often written as C= a + b(Y-T) where b expresses: a. The marginal savings rate b. The marginal propensity to consume c. The interest rate that maximizes consumption d. The relationship between tax and consumption
Consider a hypothetical closed economy in which households spend $0.60 of each additional dollar they earn and save the remaining $0.40. The marginal propensity to consume (MPC) for this economy is Suppose the government in this economy decides to increase government purchases by $400 billion. The increase in government purchases will lead to an increase in income, generating an initial change in consumption equal to . This increases income yet again, causing a second change in consumption equal to The total change in demand resulting from the initial change in government spending is The following graph shows the aggregate demand curve (AD₁ ) for this economy before the change in government spending. Use the green line (triangle symbol) to plot the new aggregate demand curve (AD2) after the spending multiplier effect takes place. Hint: Be sure that the new aggregate demand curve (AD2) is parallel to the initial aggregate demand curve (AD₁). You can see the slope of AD₁ by selecting it…
Suppose that equilibrium output in a closed economy is 1,680, consumption 1,260 and investment is 120. The marginal tax rate is zero. The marginal propensity to consume out of national income is 0.75. The level of government expenditure (G) is 1260 120 300
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In each of the following cases, calculate the values of MPC, MPW, and the spending multiplier. Enter your responses below rounded to 2 decimal places. a. A $2 million increase in Income leads to a $700,000 rise in consumption on domestic items. MPC is therefore and the spending multiplier is b. A $10 million decrease in income results in a $3 million drop in consumption on domestic Items. MPC is therefore and the spending multiplier is c. A $10 million decrease in income causes a $9 million drop in withdrawals. MPC is therefore spending multiplier is MPW IS MPW IS MPW IS and the
Assume the marginal propensity to consume is 0.8. To offset a fall in income of 1,000 the government should a. raise taxes by $250. b. increase government spending and taxes by 1,000. c. increase taxes by $200. d. cut taxes by $200.
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Assume that the marginal propensity to consume is 0.75. The government wishes to increase the equilibrium gross domestic product by $100 million. This can be achieved either by increasing government spending or decreasing taxes. Calculate the multiplier effect and necessary increase in government spending?

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