Gross Domestic Product : It is defined as the money value of all finished goods and services that are produced by the normal resident and nonresident of the country inside the boundary of a country usually for one year. The formula to calculate change in GDP is, 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 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, 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, 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, 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, Here, C is consumption level. is the planned investment spending. AE is the planned aggregate spending.

Question

Want to see the full answer?

Answer 1

Question

Chapter 11, Problem 12P

To determine

Concept Introduction:

Gross Domestic Product: It is defined as the money value of all finished goods and services that are produced by the normal resident and nonresident of the country inside the boundary of a country usually for one year.

The formula to calculate change in GDP is,

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

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,

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,

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,

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,

Here,
C is consumption level.

is the planned investment spending.

AE is the planned aggregate spending.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Problem 2. If the consumer preference can be represented by a CES function with δ = 0.5, i.e. u(x, y) = x0.5 + y0.5. Let the prices and income be (px, py, w). 1. Set up the Lagrangian expression.2. Take the first-order conditions.3. Substitute into budget constraint to derive the optimal consumption bundles.

1. A town relies on four different sources for its non-drinking water needs: dam water, reclaimed water, rain water, and desalinated water. The different sources carry different risks and costs. For instance, desalinated water is fully reliable due to abundant sea water, but it is more expensive than other options. Reclaimed water also has relatively lower risk than rain or dam water since a certain amount can be obtained, even during the dry. season, by the treatment of daily generated waste water. Using any of the four options requires an investment in that resource. The return on a particular water source is defined as the amount of water generated by the source per dollar of investment in it. The expected returns and standard deviations of those returns for the four water sources are described in the following table: Water resource Expected return St. Deviation Dam water 2.7481 0.2732 Reclaimed water 1.6005 0.0330 Rain water 0.5477 0.2865 Desalinated water 0.3277 0.0000 Higher…

1. Imagine a society that produces military goods and consumer goods, which we'll call "guns" and "butter." a. Draw a production possibilities frontier for guns and butter. Using the concept of opportunity cost, explain why it most likely has a bowed-out shape. b. Show a point that is impossible for the economy to achieve. Show a point that is feasible but inefficient. c. Imagine that the society has two political parties, called the Hawks (who want a strong military) and the Doves (who want a smaller military). Show a point on your production possibilities frontier that the Hawks might choose and a point the Doves might choose. d. Imagine that an aggressive neighboring country reduces the size of its military. As a result, both the Hawks and the Doves reduce their desired production of guns by the same amount. Which party would get the bigger "peace dividend," measured by the increase in butter production? Explain.