ECON MACRO (with ECON MACRO Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
5th Edition
ISBN: 9781305659094
Author: William A. McEachern
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 11, Problem 1.6P
To determine
the effect on the size of the spending multiplier, when the investment has an autonomous component and a component that varies directly with the level of real GDP.
Concept Introduction:
Government purchases: Government purchases are the tools of fiscal policy by which government increase or decrease the aggregate demand of the economy and control the
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
3. (3.5 points) Assume that when' aggregate income (ie, aggregate output, or Y) increases by $120 million in the country
of Intrometida aggregate consumption (C) there increases by $24 million.
a. Using the pieces of information just given, find the marginal propensity to consume (MPC) for the economy of
Intrometidar What is the marginal propensity to save (MPS) Show your work. Express your answers as either
fractions or the appropriate decimals.
MPC
MPS
(4. From 2009 to 2014, Eastlandia experienced large fluc-
tuations in both aggregate consumer spending and
disposable income, but wealth, the interest rate, and
expected future disposable income did not change. The
accompanying table shows the level of aggregate con-
sumer spending and disposable income in millions of
dollars for each of these years. Use this information to
answer the following questions.
Disposable income
(millions of dollars)
Consumer spending
(millions of dollars)
Year
2009
$100
$180
2010
350
380
2011
300
340
2012
400
420
2013
375
400
2014
500
500
a. Plot the aggregate consumption function for
Eastlandia.
b. What is the marginal propensity to consume? What
is the marginal propensity to save?
c. What is the aggregate consumption function?
3). Part (a) (b) full explain
Chapter 11 Solutions
ECON MACRO (with ECON MACRO Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
Knowledge Booster
Similar questions
- 15arrow_forward(Shifts of Aggregate Demand) Assume the simple spending multiplier equals 3. Determine the size and direction of any changes of aggregate expenditure line, real GDP demanded, and the aggregate demand curve for each of the following changes in spending: a. Spending rises by $8 billion at each income level. b. Spending falls by $5 billion at each income level. c. Spending rises by $20 billion at each income level.arrow_forward(Use for a and b)Suppose the interest on the debt was $700 billion. If interest is paid domestically, 90% will be spent domestically (the remainder is spent on foreign goods). If interest is paid to the foreign sector, only 10% is spent here (the remainder is spent in foreign countries). Every dollar collected in taxes to pay the interest causes domestic spending to fall 90 cents. The spending multiplier is 2. a) What is the net impact on GDP if all interest is paid domestically? b) What is the net impact on GDP if 20% of the interest is paid to the foreign sector? c)What are the desirable qualities of an efficient commodity money?arrow_forward
- 3. Complete the accompanying table. (a) What is the break-even level of income? How is it possible for households to dissave at very low income levels? Level of output and income (GDP = DI) Consumption Saving MPS АРС APS MPC S182 -$5 207 232 257 10 282 15 307 20 332 25 357 30 382 35arrow_forward21- The purchase of a new car falls under which of the following types of expenditure? A) C B) M C) G D) X E) Iarrow_forward1. (a) The following equations describe an economy: C-100+ 0.75Yd I-50-25r T-G-50 Where C is aggregate consumption, Y is disposable income, I is aggregate investment. I is taxes, G is government purchases and r is the rate of interest. Derive the IS curve for the economy. Show the area of excess demand and excess supply in the goods market. (b) Draw the graph and explain the derivation of IS curve. 2. (a) Given the following data about the monetary sector of the economy: Ma -0.4Y-80r M₁ - 1200 million Where, Ma is demand for money, Y is the level of income, r is the rate of interest and M, is the supply of money. Derive the equation for LM curve and give the economic interpretation of this curve. Show the excess demand and excess supply in the money market. (b) Draw the graph and explain the derivation of LM curve. 3. Consider the following economy: C-100+ 0.8Yd I-50-25, G-T-50 M' P -200 M₁-Y-25r 1. Calculate the IS and LM curves. 2. Calculate the equilibrium levels of output (national…arrow_forward
- 3. Complete the accompanying table. (a) What is the break-even level of income? How is it possible for households to dissave at very low income levels? Level of output and income (GDP = DI) Consumption Saving АРС APS MPC MPS $205 2$ -$5 230 255 5 280 10 305 15 330 20 355 25 380 30 405 35arrow_forward(Changes in Government Purchases) Assume that government purchases decrease by $10 billion, with other factors held constant, including the price level. Calculate the change in the level of real GDP demanded for each of the following values of the MPC. Then, calculate the change if the government, instead of reducing its purchases, increased autonomous net taxes by $10 billion. 0.9 0.8 0.75 0.6arrow_forward5. Suppose the value of corn a household produces is the equivalent of 60 percent of its income and the value of the corn it consumes is the equivalent of 30 percent of its consumption expenditure. Household also earns 30% of their income from selling their family labor and does not purchase any labor. If the price of corn decreases by 40 percent and wage rate increases by 20 percent, calculate: a. Net rice sales as fraction of total consumption expenditure? b. Percentage effect on real purchasing power?arrow_forward
- 4) Listen Consumption per period (billions of dollars) 券 $1,600 1,400 Consumption 1,200 శ్రీఎనాలడ్ =శ 1,000 800 400 200 $400 800 1,200 1,600 2,000 2,400 Disposable personal income per period (billions of dollars) Reference: Ref 11(26)-3 Figure: Consumption and Disposable Personal Income (Figure: Consumption and Disposable Personal Income) Use Figure: Consumption and Disposable Personal Income. When disposable personal income is $2,000 billion, consumption is billion.arrow_forward6. Aggregate expenditure and income Suppose the following table shows consumption (C), investment (I), government purchases (G), and net exports (NX) in a hypothetical economy for various levels of real GDP. Assume that the price level remains unchanged at all levels of real GDP. Real GDP с G NX (Billions of dollars) (Billions of dollars) (Billions of dollars) (Billions of dollars) (Billions of dollars) 500 250 250 200 -150 600 325 250 200 -150 700 400 250 200 -150 800 475 250 200 -150 900 550 250 200 -150 The following graph shows real GDP on the horizontal axis and aggregate expenditure on the vertical axis. Use the orange line (square symbol) to plot a 45-degree line on this graph. Then use the blue points (circle symbols) to plot the aggregate expenditure line for this economy. Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. AGGREGATE EXPENDITURES (Billions of dollars) 1000 900 800 700 600 500 400 400…arrow_forward1. (Table: Consumption for Four Consumers) Use Table: Consumption for Four Consumers. Construct the aggregate consumption function. Table: Consumption for Four Customers Cardi's Santiago's Consumption Disposable Nicki's Manuel's Income Consumption Consumption Consumption $0 $500 $1,000 $800 $1,200 1,000 1,000 1,900 1,600 1,800 2,000 1,500 2,800 2,400 2,400 3,000 2,000 3,700 3,200 3,000 4,000 2,500 4,600 4,000 3,600 c. What is the MPC according to the aggregate consumption function? How is that related to the MPS?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
