PRINCIPLES OF MACROECONOMICS (LL)W/ACC.
7th Edition
ISBN: 9781264088980
Author: Frank
Publisher: MCG
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Chapter 13, Problem 7RQ
To determine
Define the multiplier and the factors affecting the value of multiplier.
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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
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 $2.5 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 3% and a quantity of money equal to $15 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 spending…
Chapter 13 Solutions
PRINCIPLES OF MACROECONOMICS (LL)W/ACC.
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- In the table below, state what would be the impact on the MPE and the Multiplier if there is an increase in MPC, MPS, MPM and MTR. In each case state whether they increase, decrease or not be affected. Put your answers in columns 2 and 3 of the table. Event (1) MPC rises MPS rises MPM rises MTR rises Impact on the MPE (2) Impact on the multiplier (3)arrow_forwardThe autonomous consumption expenditures and autonomous investment expenditures in an economy are $250 and $350, respectively. It is also observed that individuals spend 90% of their additional income on consumption. Using the information provided above, the aggregate expenditure function for this economy is: (Round your response for the intercept term to the nearest whole number and for the slope term to two decimal places.) The simple multiplier for this economy can be calculated as 10. (Round your response to one decimal place.) The value of the simple multiplier implies that a $200 decrease in the autonomous investment expenditures would lead to a $ in the equilibrium level of actual income. (Round your response to the nearest dollar.) increase AE = 600+ 0.9 Y decreasearrow_forwardSuppose 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 (AD₁). 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 (AD2) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2) is parallel to AD₁. You can see the slope of AD₁ by selecting it on the following graph. PRICE LEVEL 116 114 112 110 108 106 104 102 100 100 AD1 102 106 108 110 OUTPUT (Billions of dollars) 104 112 114 1 116 AD2 AD 3 ?arrow_forward
- 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 (AD₁). 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 (AD2) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2) is parallel to AD₁. You can see the slope of AD₁ by selecting it on the following graph. PRICE LEVEL 110 114 112 110 108 108 104 102 100 AD. 100 9 102 104 108 108 110 112 114 118 OUTPUT (Billions of dollars) ง AD₂ $ AD₂ The following graph plots equilibrium in the money market at an interest rate of 1.5% and a quantity of money equal to $45 billion.arrow_forwardSuppose 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 (AD1). Suppose now that the government increases its purchases by $2.5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2) is parallel to AD1. You can see the slope of AD1 by selecting it on the following graph. PRICE LEVEL 116 114 112 110 108 106 104 102 100 100 AD₁ 1 102 106 108 110 OUTPUT (Billions of dollars) 104 112 114 116 þ } AD2 AD 3arrow_forwardConsider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The following graph shows the economy's initial aggregate demand curve (AD₂). Suppose the government increases its purchases by $5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD) is parallel to AD. You can see the slope of AD, by selecting it on the following graph. 118 114 112 110 108 106 104 102 100 H 100 105 110 115 120 125 130 135 140 OUTPUT (Bloof dollar) 15.0 The following graph shows the money market in equilibrium at an interest rate of 7.5% and a quantity of money equal to $45 billion. 10.0 401 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. 7.5 25 0 15 Money Supply Morey Demand 30 45 60 MONEY (Billens of…arrow_forward
- Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. Consumption and the multiplier: Show how to derive an IS curve that includes the consumption multiplier. That is show how to derive equation (11.16(below)). Draw a graph of the original IS curve and the IS curve that includes the multiplier. Which one is flatter and why? (11.16) Y~=[1/(1-x-bar)] x [a-bar - b-bar(Rt - r-bar)] ^multiplier ^original IS curvearrow_forwardConsider a hypothetical economy in which households spend $0.75 of each additional dollar they earn and save the remaining $0.25. The following graph shows the economy's initial aggregate demand curve (AD1AD1). Suppose the government increases its purchases by $3.75 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.arrow_forwardIn Goa, India, the multiplier effect of iron ore exports is calculated to be 1.62 (Ta, 2003). Calculate the impact of an additional 1,000 rupees of iron ore exports on the economy of Goa.arrow_forward
- What is a multiplier? How does the multiplier effect occur? Please provide examples of at least three types of multipliers in an economy. Please provide some examples within the context of the COVID-19 impact in the economy.arrow_forwardConsider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The following graph shows the economy's initial aggregate demand curve (AD₁). Suppose the government increases its purchases by $5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD₂) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2) is parallel to AD₁. You can see the slope of AD₁ by selecting it on the following graph. ? 116 RICE LEVEL 114 112 110 108 AD₁ AD₂ AD 3 C F9 F10 F11 F12 Fn Lockarrow_forwardConsider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The following graph shows the economy's initial aggregate demand curve (AD1). Suppose the government increases its purchases by $2 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2) is parallel to AD1. You can see the slope of AD1 by selecting it on the following graph. 114 152 110 100 100 104 102 150 100 102 104 108 108 110 112 114 110 OUTPUT( 30 41 The following graph shows the money market in equilibrium at an interest rate of 1.5% and a quantity of money equal to $45 billion. SINNTEKIN 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. as 0 D 15 Money 30 MONEY Mordy Domene 45 00 of d A AD₂ 75 Ⓒ a Money Damen Many Sy (?)…arrow_forward
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