Microeconomics (6th Edition)
Microeconomics (6th Edition)
6th Edition
ISBN: 9780134106243
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 14, Problem 14.2.16PA

Subpart (a):

To determine

Dominant strategy of firm.

Subpart (b):

To determine

Prisoner’s dilemma.

Subpart (c):

To determine

Dominant strategy of firm.

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3. The multiplier effect of a change in government purchases Suppose there is some hypothetical closed economy in which households spend $0.80 of each additional dollar they earn and save the remaining $0.20. The marginal propensity to consume (MPC) for this economy is0.8   , and the spending multiplier for this economy is5   .     Suppose the government in this economy decides to decrease government purchases by $300 billion. The decrease in government spending will lead to a decrease in income, creating an initial change in consumption equal to-$240 billion   . This decreases income yet again, leading to a second change in consumption equal to-$192 billion   . The total change in demand resulting from the initial change in government spending is-$1.5 trillion   .   The following graph shows the aggregate demand curve (AD1AD1) for this economy before the change in government spending. Use the green line (triangle symbol) to plot the new aggregate demand curve…
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a. From the following data calculate "National Income" by Income & expenditure method. (8 marks) Parameters $ Interest 150 Rent 250 Government Final Consumption Expenditure GFCE 600 Private Final Consumption Expenditure PFCE Profits Compensation of employees Net Income from Abroad NFIA Net Indirect Tax NIT Net Export Consumption of fixed capital Net Domestic Capital Formation NDCF 1200 640 1000 30 60 -40 50 34
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