The marginal propensity to consume in this economy is [ Suppose the central bank's policy is to adjust the money supply to maintain the interest rate at 2%, so r = 2. When the interest rate is 2%, GDP is S GDP at an interest rate of 2% is the full-employment level. Assuming no change in monetary policy, in government purchases by S (Note: Assume that this change in fiscal policy has no crowding-out effect.) Assuming no change in fiscal policy, in the interest rate by would restore GDP to the full-employment level. % would restore GDP to the full-employment level.
The marginal propensity to consume in this economy is [ Suppose the central bank's policy is to adjust the money supply to maintain the interest rate at 2%, so r = 2. When the interest rate is 2%, GDP is S GDP at an interest rate of 2% is the full-employment level. Assuming no change in monetary policy, in government purchases by S (Note: Assume that this change in fiscal policy has no crowding-out effect.) Assuming no change in fiscal policy, in the interest rate by would restore GDP to the full-employment level. % would restore GDP to the full-employment level.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:The marginal propensity to consume in this economy is
Suppose the central bank's policy is to adjust the money supply to maintain the interest rate at 2%, so r = 2.
When the interest rate is 2%, GDP is 5
GDP at an interest rate of 2% is
the full-employment level.
Assuming no change in monetary policy,
in government purchases by S
(Note: Assume that this change in fiscal policy has no crowding-out effect.)
Assuming no change in fiscal policy,
in the interest rate by
would restore GDP to the full-employment level.
% would restore GDP to the full-employment level.
Transcribed Image Text:5. Problems and Applications Q11
Consider an economy described by the following equations:
Y=C+I+G
C= 150+0.6 x (Y-T)
1=500-50 xr
G=200
T= 150
where Y is GDP, C is consumption, I is investment, G is government purchases, T is taxes, and r is the interest rate. If the economy were at full
employment (that is, at the natural rate of output), GDP would be $1,400.
Identify the equation(s) each of the following statements describes. Check all that apply.
Statement
It is an autonomous amount, independent of other factors.
It is a function of disposable income.
It depends on the interest rate.
The marginal propensity to consume in this economy is
C
D
0
0
1
O
G
O
T
O
0
0
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