Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 10, Problem 15QP
To determine
The impact of increased savings and decreased interest rate on the economy.
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In the country of Borealis, the minimum amount of consumption spending that will occur is $300
- that is, no matter what level of income households have, the aggregate amount of consumption
spending in the economy will be at least $300. In addition, for every extra dollar of national
income, consumption spending will increase by $0.75.
It is possible that the interest rate might affect consumption spending. An increase in the interest rate could, in principle, lead to increases in saving and therefore a reduction in consumption, given the level of income. Suppose that consumption is, in fact, reduced by an increase in the interest rate. How will the IS curve be affected?
In the simple Keynesian model, if aggregate expenditure is less than GDP, output will
a)decline as firms increase their prices to stop the buildup of inventories
b)increase as firms increase production to try to stop depletion of inventories
c)remain unchanged indefinitely unless government takes action
d)increase as firms cut their prices to try to stop depletion of inventories
e)decline as firms cut production to stop the buildup of inventories
Chapter 10 Solutions
Macroeconomics
Ch. 10.1 - Prob. 1STCh. 10.1 - Prob. 2STCh. 10.1 - Prob. 3STCh. 10.2 - Prob. 1STCh. 10.2 - Prob. 2STCh. 10.2 - Prob. 3STCh. 10.3 - Prob. 1STCh. 10.3 - Prob. 2STCh. 10.3 - Prob. 3STCh. 10.4 - Prob. 1ST
Ch. 10.4 - Prob. 2STCh. 10 - Prob. 1QPCh. 10 - Prob. 2QPCh. 10 - Prob. 3QPCh. 10 - Prob. 4QPCh. 10 - Prob. 5QPCh. 10 - Prob. 6QPCh. 10 - Prob. 7QPCh. 10 - Prob. 8QPCh. 10 - Prob. 9QPCh. 10 - Prob. 10QPCh. 10 - Prob. 11QPCh. 10 - Prob. 12QPCh. 10 - Prob. 13QPCh. 10 - Prob. 14QPCh. 10 - Prob. 15QPCh. 10 - Prob. 16QPCh. 10 - Prob. 17QPCh. 10 - Prob. 18QPCh. 10 - Prob. 19QPCh. 10 - Prob. 20QPCh. 10 - Explain how to derive a total expenditures (TE)...Ch. 10 - Prob. 22QPCh. 10 - Prob. 23QPCh. 10 - Prob. 24QPCh. 10 - Prob. 25QPCh. 10 - Prob. 1WNGCh. 10 - Prob. 2WNGCh. 10 - Prob. 3WNGCh. 10 - Prob. 4WNGCh. 10 - Prob. 5WNGCh. 10 - Prob. 6WNGCh. 10 - Prob. 7WNGCh. 10 - Prob. 8WNG
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- 7. Deriving and exploring the total expenditures curve The following graph shows total production (TP) and the level of Natural Real GDP (NRGDP) for a hypothetical economy. When Real GDP is $325 billion, consumption is $275 billion, government purchases are $50 billion, and investment is $25 billion. When Real GDP is $375 billion, consumption is $300 billion, government purchases are $50 billion, and investment is $25 billion. Use the blue line (circle symbol) to plot the economy's total expenditure function within a simplified Keynesian framework. 450 425 X 400 375 TOTAL EXPENDITURE (Billions of dollars) 500 475 350 325 300 300 TP NRGDP 325 350 375 400 425 REAL GDP (Billions of dollars) 450 475 500 TE ?arrow_forwardUS Real GDP fell by 9 percent during the 2nd quarter of 2020. Real investment spending fell by 16.9 percent during Q2 of 2020, and investment spending makes up about 20 percent of GDP. How much did the decline in investment spending contribute to the decline in real GDP in the US during Q2 of 2020?arrow_forwardWhat are the various factors which influence propensity to consumearrow_forward
- The following are exogenous (not directly affected by income): G = 11 I = 4 X = M = 0 The consumption function is: C = k + cY, where k = 3, c = 0.8 What is the equilibrium level of GDP? What is the multiplier?arrow_forwardAccording to Keynes(Keynesian Macroeconomics), can the private sector always remove the economy from a recessionary gap? What would be the solution from a Christian perspective regarding people who cannot afford medical care?arrow_forwardCalculate investment expenditure from the following data about an economy which in equilibrium: National income =$1000 Marginal propensity to save=$0.25 Autonomous consumption expenditure=$200arrow_forward
- In the long run, what happens to consumption in the economy when people are saving less? a) remains the same b) cannot tell from the graph c) decreases d) increasesarrow_forwardIf the marginal propensity to consume is 0.90, what is the marginal propensity to save?arrow_forwardIf planned expenditures are below actual production, what will happen to income? Explain the process by which this happens.arrow_forward
- The multiplier effect occurs becausearrow_forwardCalculate autonomous consumption expenditure from the following date about an economy which is In equilibrium.National income = Rs. 1,100Marginal propensity to save = 0.20Investment expenditure = Rs. 80(Autonomous Consumption Expenditure = 120arrow_forwardAccording to the multiplier concept when there is a change in any one of the components of total expenditures (C, I, G, or X-IM), a multiple impact upon: a) the rate of unemployment will occur. b) saving in the economy will occur. c) household expenditures will occur. d) income will occur.arrow_forward
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