Please answer everything in the photos including the graphs. PLANNED EXPENDITURE (Billions of dollars)200160140120Z1008060AE Line180402000 20MPC-0.70406080100 120140 160REAL INCOME (Billions of dollars)45-Degree LineMultiplier 1-MPC180200IIII- ΔNew AE LineIn the first economy (with MPC = 0.5), the $30 billion decrease in planned investment causes equilibrium income to decrease by $the second economy (with MPC = 0.70), the $30 billion decrease in planned investment causes equilibrium income to decrease by STherefore, a lower MPC is associated with amultiplier.Now, confirm your graphical analysis algebraically using the formula for the multiplier:New EquilibriumUsing the same method, the multiplier for the second economy isFor the first economy with an MPC of 0.5, the effect of the $30 billion decrease in planned investment becomes the following:(?)Change in Equilibrium Real Income = Change in Planned Expenditure x MultiplierXXbillion. Inbillion. Consider two hypothetical economies that are perfectly similar except for their marginal propensity to consume (MPC). Each economy is currently inequilibrium with real income and planned expenditure equal to $100 billion, as given by the black points (plus signs) on the following two graphs.Assume that both economies are closed to trade, and that neither economy has taxes that change with income. The graphs also plot the 45-degreeline.The first economy has an MPC equal to 0.5. Therefore, its initial planned expenditure line has a slope of 0.5 and passes through the point (100, 100).The second economy has an MPC equal to 0.70. Therefore, its initial planned expenditure line has a slope of 0.70 and passes through the point (100,100).Now, suppose there is a decrease of $30 billion in planned investment in each economy.Place a green line (triangle symbol) on each of the preceding graphs to indicate the new planned expenditure line for each economy. Then place ablack point (plus symbol) on each graph showing the new level of equilibrium income. (Hint: You can see the slope and vertical axis intercept of a lineon the graph by selecting it.)PLANNED EXPENDITURE (Billions of dollars)200180160+1401201008060402000AE Line20MPC-0.54045-Degree Line60 80 100 120REAL INCOME (Billions of dollars)140 160 180 200New AE LineNew Equilibrium

The first economy has an MPC equal to 0.5. The second economy has an MPC equal to 0.70 There is a…

The first economy has an MPC equal to 0.5. Therefore, its initial planned expenditure line has a slope of 0.5 and passes through the point (100, 100). The second economy has an MPC equal to 0.70. Therefore, its initial planned expenditure line has a slope of 0.70 and passes through the point (100, 100).

The first economy has an MPC equal to 0.5. Therefore, its initial planned expenditure line has a slope of 0.5 and passes through the point (100, 100). The second economy has an MPC equal to 0.70. Therefore, its initial planned expenditure line has a slope of 0.70 and passes through the point (100, 100).

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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