PRINCIPLES OF MACROECONOMICS (LL)W/ACC.
7th Edition
ISBN: 9781264088980
Author: Frank
Publisher: MCG
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Question
Chapter 13, Problem 6P
(a)
To determine
Change in the recessionary gap after a fall in the planned investment.
(b)
To determine
The change in government purchases to restore the economy to full employment level.
(c)
To determine
The amount of tax that should be reduced by the government to restore full employment equilibrium.
(d)
To determine
Explain the policy measure used by the fiscal policy makers to restore full employment equilibrium without violating the law of balanced budget.
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The following table shows consumption (C), investment spending (I), and government purchases (G), for some hypothetical economy at several levels of income (reported in billions of dollars of real GDP). Assume that in this economy, income is taxed at a rate of 25%, base consumption is $50 billion, and that the marginal propensity to consume (MPC) is 0.667, or 2/3.
Further assume that this economy is closed, that is, there is no international trade and so net exports are always equal to zero.
Use the given information to fill in disposable income, consumption, and planned expenditures in the following table.
Income: Real GDP
Disposable (After Tax) Income
C
Ip
G
Planned Expenditures
(Billions of dollars)
(Billions of dollars)
(Billions of dollars)
(Billions of dollars)
(Billions of dollars)
(Billions of dollars)
0
0
50
100
50
100
100
50
200
100
50
300
100
50
400
100
50
500
100
50…
The following table shows consumption (C), investment spending (I), and government purchases (G), for some hypothetical economy at several levels of income (reported in billions of dollars of real GDP). Assume that in this economy, income is taxed at a rate of 25%, base consumption is $25 billion, and that the marginal propensity to consume (MPC) is 0.333, or 1/3.
Further assume that this economy is closed, that is, there is no international trade and so net exports are always equal to zero.
Use the given information to fill in disposable income, consumption, and planned expenditures in the following table.
Income: Real GDP
Disposable (After Tax) Income
C
Ip
G
Planned Expenditures
(Billions of dollars)
(Billions of dollars)
(Billions of dollars)
(Billions of dollars)
(Billions of dollars)
(Billions of dollars)
0
0
25
150
50
100
150
50
200
150
50
300
150
50
400
150
50
500
150
50…
If Andrea’s disposable income increases from $600 to $700 and her level of personal consumption expenditures increases from $450 to $475. You may conclude that her marginal propensity to consume is:
Group of answer choices
0.5
0.1
0.75
0.25
Chapter 13 Solutions
PRINCIPLES OF MACROECONOMICS (LL)W/ACC.
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