Suppose there is some hypothetical closed economy in which households spend $0.80 of each additional doilar they earn and save the remaining $0.20. 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 $400 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

Suppose there is some hypothetical closed economy in which households spend $0.80 of each additional doilar they earn and save the remaining $0.20. 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 $400 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

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that there is an autonomous increase in investment spending of $20 billion and the MPC is given as 0.4, and assuming taxes, imports, and savings are all equal and there are no leakages: How large is the spending multiplier? Use the simple multiplier equation to calculate it. How much is the total change in GDP from this autonomous increase in investment spending? Do you think a larger or smaller MPC would help the economy, and why? What could be some concerns about the Keynesian spending multiplier?
Suppose the government reduces taxes by 50,000,000, that there is no crowding out, and that marginal propensity to consume is 0.9. What is the total amount of additional economic activity that results from this tax cut?
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Which of the following formulas for the simple income multiplier for autonomous spending is correct? a) 1 / mps b) 1 / (1-mpc) c) change in equilibrium income / change in autonomous spending d) all of the above
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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 $______ billion. This decreases income yet again, leading to a second change in consumption equal to $________ billion . The total change in demand resulting from the initial change in government spending is $ ________ trillion. The following graph shows the aggregate demand curve (AD1AD1) for this economy before the change in government spending. Use the green line (triangle symbol) to plot the new aggregate demand curve (AD2AD2) after the multiplier effect takes place. For simplicity,…
Assume that the Marginal Propensity to Consume (MPC) is 0.8. If the multiplier effect is taken into account, the reduction in government expenditure by $ 200 million will shift the overall demand process to the correct order below. A) right, $1,000 million B) left, $ 200 million C) left, $160 million D) left, $1,000 million E) right, $ 160 million
Income Expenditures 0 100 100 150 200 200 300 250 Refer to the table above to answer the following: (a) At an income level of $200, how much is autonomous expenditures and how much is induced? (b) Given the expenditures function AE = $4,000 + 0.6Y and income of $1,000, how much is spent and how much is induced?
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Assume that in the economy of Utrea, the MPC is 0.8 and the multiplier is 3 and that both government spending and autonomous taxes are increased by $40. In what direction and by how much will equilibrium GDP change?
Q)Imagine the government wants to conduct an expansionary fiscal policy and needs an expert to answer the following questions before making a decision. a) Calculate the value of the multiplier effect if the marginal propensity to consume is 0.8. b) Calculate the increase in GDP which will occur, if the government increases its government spending by $600 million and the marginal propensity to consume is 0.8.