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

The postwar period demonstrates how Keynesianism has evolved in terms of its ability to mitigate…

Answered: Use the Keynesian cross model to…

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

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter8: The Keynesian Model

Section: Chapter Questions

Problem 9SQP

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The Life-Cycle/Permanent Income Model of Consumption makes a different prediction from the Keynesian Model, about how Consumption reacts to an increase in current income. Which of the following is the best description of the difference? O In the Keynesian Model, consumers will increasktheir spending by the mpc times the increase in income. In the Life-Cycle/Permanent Income Model, consumers will not increase their spending by much unless they believe that the increase in their income is permanent. O In the Life-Cycle/Permanent Income Model, consumers will increase their spending by the mpc times the increase in income. In the Keynesian Model, consumers will only increase their spending if they believe that the increase in their income is temporary. O In the Keynesian Model, consumers will increase their spending by the mpc times the increase in income. In the Life-Cycle/Permanent Income Model, consumers will only increase their spending if they believe that the increase in their income…
option C is incorrect 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. O An increase in taxes shifts the planned expenditure function downward. The change in income is given by AY= AY=. O An increase in taxes shifts the planned expenditure function upward. The change in income is given by -MPC 1-MPC ΔΥ= -MPC 1-MPC AY= O An increase in taxes shifts the planned expenditure function inward. The change in income is given by XAT 1 1-MPC XAT 1 1-MPC O 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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