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Concept Introduction:
The formula to calculate change in GDP is,
![LaunchPad for Krugman's Macroeconomics (Six Month Access), Chapter 11, Problem 12P , additional homework tip 1](https://content.bartleby.com/tbms-images/9781319098759/Chapter-11/images/html_98759-11-12p_1.png)
Here,
is autonomous spending.
- MPC is marginal propensity to consume.
Marginal Propensity to Consume ( MPC ): It is defined as the change which occurs in total consumption level due to change in income.
The formula to calculate MPC is
![LaunchPad for Krugman's Macroeconomics (Six Month Access), Chapter 11, Problem 12P , additional homework tip 3](https://content.bartleby.com/tbms-images/9781319098759/Chapter-11/images/html_98759-11-12p_3.png)
Here,
is change in income.
is change in consumption level.
- MPC is marginal propensity to consume.
Multiplier: It is defined as the ratio of total change in gross domestic product due to change in the autonomous spending.
The formula to calculate multiplier is,
![LaunchPad for Krugman's Macroeconomics (Six Month Access), Chapter 11, Problem 12P , additional homework tip 6](https://content.bartleby.com/tbms-images/9781319098759/Chapter-11/images/html_98759-11-12p_6.png)
Here,
- MPC is marginal propensity to consume.
Aggregate Consumption Level ( C ): It is defined as the consumption of whole economy
The formula to calculate change in aggregate spending is,
![LaunchPad for Krugman's Macroeconomics (Six Month Access), Chapter 11, Problem 12P , additional homework tip 7](https://content.bartleby.com/tbms-images/9781319098759/Chapter-11/images/html_98759-11-12p_7.png)
Here,
is change in consumption.
is change in income.
- MPC is marginal propensity to consume.
Consumption Function: It shows how the change in disposable income of an individual changes the consumption level.
The formula to calculate consumption function is,
![LaunchPad for Krugman's Macroeconomics (Six Month Access), Chapter 11, Problem 12P , additional homework tip 10](https://content.bartleby.com/tbms-images/9781319098759/Chapter-11/images/html_98759-11-12p_10.png)
Here,
- C is consumption level.
is autonomous consumption.
is disposable income
- MPC is marginal propensity to consume.
Planned Aggregate Spending: It is the summation of consumption level in an economy and the planned investment.
The formula to calculate planned aggregate spending is,
![LaunchPad for Krugman's Macroeconomics (Six Month Access), Chapter 11, Problem 12P , additional homework tip 13](https://content.bartleby.com/tbms-images/9781319098759/Chapter-11/images/html_98759-11-12p_13.png)
- C is consumption level.
is the planned investment spending.
- AE is the planned aggregate spending.
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Chapter 11 Solutions
LaunchPad for Krugman's Macroeconomics (Six Month Access)
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