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Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD₂) after the multiplier effect takes place.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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In the country of Krugman, a business spent $100 million building a factory. GDP eventually increased by 200 million. People spend 11% of every dollar on imports. What is the marginal propensity to consume in this economy? Write your answer as a number, between 0 and 1. If you think the answer is 0, write 0.00, not 0. Answer: Study the graph below. When will the multiplier be biggest? Select one: The multiplier will be the same size no matter what Aggregate Demand is b. The multiplier will be one no matter what aggregate demand is When aggregate demand is at AD1 d. When aggregate demand is at AD3 e When aggregate demand is at AD2 Price Level AD₁ AS e All of these are true AD₂ AD₁ GDP Why is potential output called potential, when it is not actually the most the economy can produce? Select one: a. Because potential is the most the economy can produce right now, with the technology and workers and equipment we have right now. Ob. Because economists just like to be confusing for no reason…
Use both numerical and graphical methods to find the multiplier effect of the following shift in the consumption function in an economy in which investment is always $220, government purchases are always $100, and net exports are always 2-40. (Hint: What is the marginal propensity to consume?)
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Assume that Consumption is C = c(Y-T); Taxes T = tY; Investment / = -bi; and Government expenditure (G) is exogenous. Determine the multiplier for an increase in the tax rate.
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In 250 words or less, answer the following question. With reference to the multiplier process, discuss how a shock to an exogenous component of aggregate expenditure may lead to a larger than proportionate change in economic output in equilibrium.
Consider a hypothetical closed economy in which there are no income taxes. If households spend $0.75 of each additional dollar they earn and save the remainder, the expenditure multiplier for this economy is The following graph shows the initial aggregate demand (AD) and short-run aggregate supply (SRAS) curves of this economy. Suppose that the economy is currently in a recession. Business firms are pessimistic about the future and do not respond to a fall in interest rates. In addition, all households are pessimistic about job prospects and desire to consume less and save more at all levels of income. As a result, personal consumption in this economy decreases by $1 billion. The reduction in personal consumption will lead to a decrease in aggregate demand by S Shift either the AD curve or the SRAS curve, or both, to show the new aggregate demand curve after the full impact of the multiplier process of the reduction in personal consumption has taken place. PRICE LEVEL (Billions of…
Consider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The following graph shows the economy's initial aggregate demand curve (AD1). Suppose the government increases its purchases by $2 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2) is parallel to AD1. You can see the slope of AD1 by selecting it on the following graph. 114 152 110 100 100 104 102 150 100 102 104 108 108 110 112 114 110 OUTPUT( 30 41 The following graph shows the money market in equilibrium at an interest rate of 1.5% and a quantity of money equal to $45 billion. SINNTEKIN Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. as 0 D 15 Money 30 MONEY Mordy Domene 45 00 of d A AD₂ 75 Ⓒ a Money Damen Many Sy (?)…
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Suppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (AD₁). Suppose now that the government increases its purchases by $3.5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2) is parallel to AD₁. You can see the slope of AD₁ by selecting it on the following graph. PRICE LEVEL 116 114 112 110 108 106 104 102 100 100 AD1 102 106 108 110 OUTPUT (Billions of dollars) 104 112 114 1 116 AD2 AD 3 ?