PRINCIPLES OF MACROECONOMICS (LL)W/ACC.
7th Edition
ISBN: 9781264088980
Author: Frank
Publisher: MCG
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Question
Chapter 13, Problem 7P
(a)
To determine
Find a numerical equation relating planned aggregate expenditure to output.
(b)
To determine
Construct a table to find the value of short-run equilibrium output.
(c)
To determine
Explain the effect of changes in the fiscal policy using Keynesian-cross diagram.
(d)
To determine
Explain the effect of changes in fiscal policy if the full-employment output is 630.
(e)
To determine
Show the results of Parts ‘b’ through ‘d’ on a Keynesian-cross diagram.
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Suppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (AD1AD1).
Suppose now that the government increases its purchases by $3.5 billion.
Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2AD2) after the multiplier effect takes place.
Hint: Be sure the new aggregate demand curve (AD2AD2) is parallel to AD1AD1. You can see the slope of AD1AD1 by selecting it on the following graph
The following graph plots equilibrium in the money market at an interest rate of 6% and a quantity of money equal to $60 billion.
Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph.
Suppose that for every increase in the interest rate of one percentage point, the level of investment…
Suppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (AD1AD1).
Suppose now that the government increases its purchases by $3.5 billion.
Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2AD2) after the multiplier effect takes place.
Hint: Be sure the new aggregate demand curve (AD2AD2) is parallel to AD1AD1. You can see the slope of AD1AD1 by selecting it on the following graph.
AD2AD3100102104106108110112114116116114112110108106104102100PRICE LEVELOUTPUT (Billions of dollars)AD1
In economics, the multiplier effect refers to the fact that when there is an injection of money to consumers, the consumers
spend a certain percentage of it. That amount recirculates through the economy and adds additional income, which comes
back to the consumers and of which they spend the same percentage. This process repeats indefinitely, circulating additional
money through the economy. Suppose that in order to stimulate the economy, the government institutes a tax cut of $8 billion.
If taxpayers are known to save 11% of any additional money they receive, and to spend 89%, how much total money (T) will
be circulated through the economy by that single $8 billion tax cut?
(Enter your answer rounded to the nearest whole number.)
billion dollars
Chapter 13 Solutions
PRINCIPLES OF MACROECONOMICS (LL)W/ACC.
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