Suppose there is some hypothetical closed economy in which households spend $0.75 of each additional dollar they earn and save the remaining $0.25. The marginal propensity to consume (MPC) for this economy is, and the spending multiplier for this economy is. Suppose the government in this economy decides to decrease government purchases by $250 billion. The decrease in government spending will lead to a decrease in income, creating an initial change in consumption equal to ▼. This decreases income yet again, leading to 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 multiplier effect takes place. For simplicity, assume that there is no "crowding out." 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 on the graph.

Suppose there is some hypothetical closed economy in which households spend $0.75 of each additional dollar they earn and save the remaining $0.25. The marginal propensity to consume (MPC) for this economy is, and the spending multiplier for this economy is. Suppose the government in this economy decides to decrease government purchases by $250 billion. The decrease in government spending will lead to a decrease in income, creating an initial change in consumption equal to ▼. This decreases income yet again, leading to 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 multiplier effect takes place. For simplicity, assume that there is no "crowding out." 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 on the graph.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Pretend you are a member of the Council of Economic Advisers and are trying to persuade the members of the House Appropriations Committee to purchase $100 billion worth of new materials, in part to stimulate the economy. Explain to the members how the multiplier process will work.
given a simple economy with consumption, government and investment. suppose income (Y)= 1000 , the MARGINAL PROPENCITY TO consume is =0,8, thw autonomous comsumption (a) = 100, investment (I) = 80 AND Government (G) = 100 and tax rate is =0,1 calculate the expenditure multiplier
If the marginal propensity to consume of an economy is 0.7, then the simple spending multiplier is:
Find MPC from the given consumption function Y=2+0.2Y
Based on the condition and calculations, what is your conclusion on the marginal propensity to consumer (MPC) in ROW 4?
Given MPC (marginal propensity to consume) = 0.75, if the government implements an expansionary fiscal policy as (1) cutting taxes by $10 billion, then by how much would total spending increase over an infinite period? (2) spending $10 billion, then by how much would total spending increase over an infinite period?
If the marginal propensity to consume is 0.9, then the tax multiplier will be: Group of answer choices impossible to determine. greater than 10. less than 10. zero, because there is no multiplier effect from taxes.
Consider a hypothetical closed economy in which households spend $0.75 of each additional dollar they earn and save the remaining $0.25. The marginal propensity to consume (MPC) for this economy is and the spending multiplier for this economy is Suppose the government in this economy decides to decrease government purchases by $250 billion. The decrease in government purchases will lead to a decrease in income, generating an initial change in consumption equal to This decreases 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 (AD 2) is parallel to the initial aggregate demand curve…
If the MPC = 3/5, then the government purchases multiplier is 5/3 5/2 5 1.5
Suppose the aggregate expenditure (AE) schedule in an economy is given by the equation AE = 1,000 + 0.8Y, where Y represents the real GDP. The government plans to implement an expansionary fiscal policy by increasing government spending by $200 billion. Calculate the new equilibrium level of real GDP (Y) if the marginal propensity to consume (MPC) is 0.75.
If the marginal propensity to consume (MPC) is 0.8, the government purchases multiplier will be This means that a $1 increase in government purchases will lead to a $ increase in real GDP.
Expansionary fiscal policy refers to (increases, decreases) in government spending or (increases, decreases) in taxes or both, so that the net effect on aggregate demand (AD) is an increase in net government spending (G). Contractionary fiscal policy is the opposite: a(n) (increase, decrease) in government spending or (increase, decrease) in taxes or both, so that the net effect on aggregate demand is a decrease in net government spending. Expansionary policy would most likely be used during a r A contractionary policy would most likely be employed near the (peak, trough ) of the business cycle as the economy reaches full-employment GDP and the potential for inflation accelerates. or (peak, trough ) phase.