Use the Keynesian cross model to predict the impact of an increase in governmentpurchases on equilibrium GDP. State the direction of the change and give a formula forthe size of the impact.An increase in taxes shifts the planned expenditure function downward. The change inincome is given byAY=ΔΥ=-MPC1-MPCAn increase taxes shifts the planned expenditure function upward. The change in income is givenby-MPC1-MPCAY=XATAn increase in taxes shifts the planned expenditure function inward. The change in income is givenbyAY=11-MPCXAT11-MPCThe direction of the shift is undetermined without knowing the slope of the PE function. Thechange in income is given byXATXAT

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Use the Keynesian cross model to predict the impact of an increase in government purchases on equilibrium GDP. State the direction of the change and give a formula for the size of the impact.

MACROECONOMICS FOR TODAY

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ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter8: The Keynesian Model

Section: Chapter Questions

Problem 9SQP

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Question

Use the Keynesian cross model to predict the impact of an increase in government
purchases on equilibrium GDP. State the direction of the change and give a formula for
the size of the impact.
An increase in taxes shifts the planned expenditure function downward. The change in
income is given by
AY=
ΔΥ=
-MPC
1-MPC
An increase taxes shifts the planned expenditure function upward. The change in income is given
by
-MPC
1-MPC
AY=
XAT
An increase in taxes shifts the planned expenditure function inward. The change in income is given
by
AY=
1
1-MPC
XAT
1
1-MPC
The direction of the shift is undetermined without knowing the slope of the PE function. The
change in income is given by
XAT
XAT

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