Exploring Macroeconomics
Exploring Macroeconomics
7th Edition
ISBN: 9781285859446
Author: Sexton, Robert L.
Publisher: Cengage Learning
Question
Book Icon
Chapter 16, Problem 8P
To determine

(a)

To compute:

The value of change in aggregate demand and change in consumption if the marginal propensity to consume was 13.

Expert Solution
Check Mark

Answer to Problem 8P

The increase in value of aggregate demandis $30billion if the marginal propensity to consume is 13

The change in consumption will be $10 billion.

Explanation of Solution

Given information:

Government purchase is $20 billion.

Calculation for increase in aggregate demand:

  20×32=$30billion

Calculation for change in consumption:

  ΔC=MPC×ΔY=13×$30billion=$10billion

Working note:

Calculation for Multiplier:

  m=11MPC=1113=32

Economics Concept Introduction

Marginal propensity to consume:

It refers to the aggregate increase in individual consumption due to increase in the income. It is calculated by dividing the change in consumption by the change in income. It is expressed as

  MPC=ΔCΔY

Where ΔC represents change in consumption and ΔY represents change in income.

The value of MPC lies in between 0 to 1.

Aggregate expenditure:

It refers to the total amount of goods and services produced by an economy in a period. It is calculated by the sum of expenditures undertaken by the economy:

  AE=C+I+G+NX

Here, C is consumption, I refer to investment, G represents government expenditure and NX is net export.

The increase in income is the multipliers times of the initial increase in purchase.

  Multiplier=11MPC

To determine

(b)

To compute:

The change in value of aggregate demandand change in consumption if the marginal propensity to consume was 12.

Expert Solution
Check Mark

Answer to Problem 8P

The increase in value of aggregate demandis $40 billionif the marginal propensity to consume is 12

The change in consumption will be $20 billion.

Explanation of Solution

Given information:

Government purchase is $20 billion.

Calculation for increase in aggregate demand:

  20×2=$40billion

Calculation for change in consumption:

  ΔC=MPC×ΔY=12×$40billion=$20billion

Working note:

Calculation for multiplier:

  m=11MPC=1112=2

Economics Concept Introduction

Marginal propensity to consume:

It refers to the aggregate increase in individual consumption due to increase in the income. It is calculated by dividing the change in consumption by the change in income. It is expressed as

  MPC=ΔCΔY

Where ΔC represents change in consumption and ΔY represents change in income.

The value of MPC lies in between 0 to 1.

Aggregate expenditure:

It refers to the total amount of goods and services produced by an economy in a period. It is calculated by the sum of expenditures undertaken by the economy:

  AE=C+I+G+NX

Here, C is consumption, I refer to investment, G represents government expenditure and NX is net export.

The increase in income is the multipliers times of the initial increase in purchase.

  Multiplier=11MPC

To determine

(c)

To compute:

The value of aggregate demand if the marginal propensity to consume was 23.

Expert Solution
Check Mark

Answer to Problem 8P

The increase in value of aggregate demandis $60 billionif the marginal propensity to consume is 23

The change in consumption will be $40 billion.

Explanation of Solution

Given information:

Government purchase is $20 billion.

Calculation for increase in aggregate demand:

  20×3=$60billion

Calculation for change in consumption:-

  ΔC=MPC×ΔY=23×$60billion=$40billion

Working note:

Calculation for multiplier:

  m=11MPC=1123=3

Economics Concept Introduction

Marginal propensity to consume:

It refers to the aggregate increase in individual consumption due to increase in the income. It is calculated by dividing the change in consumption by the change in income. It is expressed as

  MPC=ΔCΔY

Where ΔC represents change in consumption and ΔY represents change in income.

The value of MPC lies in between 0 to 1.

Aggregate expenditure:

It refers to the total amount of goods and services produced by an economy in a period. It is calculated by the sum of expenditures undertaken by the economy:

  AE=C+I+G+NX

Here, C is consumption, I refer to investment, G represents government expenditure and NX is net export.

The increase in income is the multipliers times of the initial increase in purchase.

  Multiplier=11MPC

To determine

(d)

To compute:

The value of aggregate demand if the marginal propensity to consume was 34.

Expert Solution
Check Mark

Answer to Problem 8P

The increase in value of aggregate demandis $80 billionif the marginal propensity to consume is 34

The change in consumption will be $60 billion.

Explanation of Solution

Given information:

Government purchase is $20 billion.

Calculation for increase in aggregate demand with government purchase as $20 billion.

  20×4=$80billion

Calculation for change in consumption:-

  ΔC=MPC×ΔY=34×$80billion=$60billion

Working note:

Calculation for multiplier:

  m=11MPC=1134=4

Economics Concept Introduction

Marginal propensity to consume:

It refers to the aggregate increase in individual consumption due to increase in the income. It is calculated by dividing the change in consumption by the change in income. It is expressed as

  MPC=ΔCΔY

Where ΔC represents change in consumption and ΔY represents change in income.

The value of MPC lies in between 0 to 1.

Aggregate expenditure:

It refers to the total amount of goods and services produced by an economy in a period. It is calculated by the sum of expenditures undertaken by the economy:

  AE=C+I+G+NX

Here, C is consumption, I refer to investment, G represents government expenditure and NX is net export.

The increase in income is the multipliers times of the initial increase in purchase.

  Multiplier=11MPC

To determine

(e)

To compute:

The value of aggregate demand if the marginal propensity to consume was 45.

Expert Solution
Check Mark

Answer to Problem 8P

The increase in value of aggregate demandis $100 billionif the marginal propensity to consume is 45

The change in consumption will be $50 billion.

Explanation of Solution

Given information:

Government purchase is $20 billion.

Calculation for increase in aggregate demand:

  20×5=$100billion

Calculation for change in consumption:

  ΔC=MPC×ΔY=45×$100billion=$50billion

Working note:

Calculation for multiplier:

  m=11MPC=1145=5

Economics Concept Introduction

Marginal propensity to consume:

It refers to the aggregate increase in individual consumption due to increase in the income. It is calculated by dividing the change in consumption by the change in income. It is expressed as

  MPC=ΔCΔY

Where ΔC represents change in consumption and ΔY represents change in income.

The value of MPC lies in between 0 to 1.

Aggregate expenditure:

It refers to the total amount of goods and services produced by an economy in a period. It is calculated by the sum of expenditures undertaken by the economy:

  AE=C+I+G+NX

Here, C is consumption, I refer to investment, G represents government expenditure and NX is net export.

The increase in income is the multipliers times of the initial increase in purchase.

  Multiplier=11MPC

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Which of the following graphs best represents the production possibility frontier of Country Y (Line Y), the production possibility frontier of Country Z (Line Z), and the production possibility frontier of this whole economy (Line W)?  (Hint: Find W by adding the productive capabilities of Country Y and Z) Group of answer choices
Which of the following factors tend to decrease the wage differential between union and non union workers:   unions tend to organize the firms with the lowest ability to pay initially   all of the above   unions must moderate their wage demand to keep workers competitive   some nonunion employers pay their employees above union wages   only ‘a’ and ‘b’ above
The accompanying graph shows the short-run demand and cost situation for a price searcher in a market with low barriers to entry. Price (dollars) 24 8 MC ATC MR 30 D 45 50 Quantity/time The firm will maximize its profit at a quantity of units. After choosing the profit maximizing quantity, the firm will charge a price of The firm will receive $ in revenue at the profit-maximizing quantity. The total cost of production for this profit-maximizing quantity is S The maximum profit the firm can earn in this situation is $ per unit for this output. How will the situation change over time? Profits will attract rival firms into the market until the profit-maximizing price falls to the level of per-unit cost. ◇ Losses will induce firms to leave this market until the profit maximizing price falls to zero. The market will adjust until the price charged by this firm no longer exceeds marginal cost at the profit-maximizing quantity. This market is already in long-run equilibrium, and will not…
Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
MACROECONOMICS FOR TODAY
Economics
ISBN:9781337613057
Author:Tucker
Publisher:CENGAGE L
Text book image
Economics For Today
Economics
ISBN:9781337613040
Author:Tucker
Publisher:Cengage Learning
Text book image
Economics:
Economics
ISBN:9781285859460
Author:BOYES, William
Publisher:Cengage Learning
Text book image
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc
Text book image
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Text book image
Macroeconomics
Economics
ISBN:9781337617390
Author:Roger A. Arnold
Publisher:Cengage Learning