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Q: Consider a hypothetical economy in which households spend $0.50 of each additional dollar they earn…
A: Given The hypothetical economy in which households spend $0.50 of each additional dollar they earn…
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A: Given that, MPC = 0.80, MPI = 0.10 and income tax rate is 10 percent.
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Q: Describe the phenomenon of the multiplier effect?
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Q: Complete the following table by completing the multiplier for each MPC listed MPC - 0.17 MPC -…
A:
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- Illustrate how changes in investment (or other components of total spending) can increase or decrease real GDP by the multiplier effect.Which of the following is a true statement about the multiplier? The multiplier rises as the MPC rises. The smaller the MPC, the larger the multiplier. The multiplier is a value between zero and one. The multiplier effect does not occur when autonomous expenditure decreases.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 (AD₂). Suppose the government increases its purchases by $5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD) is parallel to AD. You can see the slope of AD, by selecting it on the following graph. 118 114 112 110 108 106 104 102 100 H 100 105 110 115 120 125 130 135 140 OUTPUT (Bloof dollar) 15.0 The following graph shows the money market in equilibrium at an interest rate of 7.5% and a quantity of money equal to $45 billion. 10.0 401 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. 7.5 25 0 15 Money Supply Morey Demand 30 45 60 MONEY (Billens of…
- True or False? Explain: The multiplier effect is likely to be greatest when the government spending is targeted at the poorest The poor will always spend most of the money they get as benefits as soon as possible Multiplier effect does not depend on who receives the money The richest people will spend a larger proportion of their money than the poorestThere might be many factors (economic and non-economic) that affect the size of the multiplier. What are some that you think could influence its size? Which ones do you think would make it larger, and which are more likely to make it smaller?What is the multiplier effect? The multiplier is simply the ratio of the change in (r spending. Multiplying the initial change in spending by the multiplier gives you the amount of change in real GDP. G ) to the initial change in The multiplier effect can work in a positive or a negative direction. An initial increase in spending will result in a (smaller, larger) increase in real GDP, and an initial decrease in spending will result in a larger (increase, decrease ) in real GDP. The multiplier magnifies the fluctuations in economic activity initiated by changes in investment spending, net exports, government spending, or consumption spending. The multiplier is related to the marginal propensities. The MPC is (directly, inversely ) related to the size of the multiplier. The MPS is (directly, inversely ) related to the size of the multiplier. What will multiplier and MPS be when the MPC is .9, and 0.5? MPC MPS Multiplier .9 .5 How much of a change in GDP will result if firms increase…
- 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 110 114 112 110 108 108 104 102 100 AD. 100 9 102 104 108 108 110 112 114 118 OUTPUT (Billions of dollars) ง AD₂ $ AD₂ The following graph plots equilibrium in the money market at an interest rate of 1.5% and a quantity of money equal to $45 billion.Define the term multiplier effect (accelerator principle)?What is the multiplier effect during a recession and full employment?
- If an economy were already at its potential GDP (ie its full-employment GDP), what would happen to the value of the multiplier? please help asap thank uSuppose 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 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 AD 1 102 104 106 108 110 112 OUTPUT (Billions of dollars) 114 116 AD2 AD 3
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