SAPLINGPLUS ACCESS MACRO 1TERM
4th Edition
ISBN: 9781319318970
Author: KRUGMAN
Publisher: MAC LTD
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Question
Chapter 11.A, Problem 2P
To determine
Concept Introduction:
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 disposable income.
The formula to calculate MPC is,
Here,
is change in disposable 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.
Consumption Level ( C ): It is one of the largest components of GDP .The individual consumption Depends on the disposable income.
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. 
is the planned aggregate spending.
Unplanned Investment: All those investments that businesses do not intend to take in given time. It is certain due to some external factors like fall in interest rate and increase in future profitability.
The formula to calculate unplanned investment is,
Here,
- YDis disposable income.
is unplanned investment spending. - AE is the planned aggregate spending.
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1800 tons of pomegranates a year is a lot of sweetness!
So, you can get 71 Afghanis for $1? How cool. Does that mean you can buy a lot of stuff in Afghanistan for only $1? How do you know that your purchasing power in Afghanistan is stronger than in the United States?
Yes, with an exchange rate of 71 Afghan Afghani for 1 US dollar, you can buy many things in Afghanistan for just $1. However, purchasing power isn't solely determined by the exchange rate. It also depends on the cost of goods and services in each country. For example, if a meal in Afghanistan costs 200 Afghanis, you would need about $2.82 to buy that meal in US dollars (since 200 Afghanis divided by 71 Afghanis per dollar equals approximately $2.82). So, while the exchange rate allows you to get more Afghanis for your dollars, you also need to consider how much things cost in Afghanistan.
Now that the world seems to like Afghani stuff and is buying more of it, does that mean your…
The idea that a country can experience gains from trade means that it can
A) consume at a point outside its production possibilities frontier.
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Chapter 11 Solutions
SAPLINGPLUS ACCESS MACRO 1TERM
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