Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 24, Problem 2.1P
To determine
MPC, MPS, Multiplier and the graph.
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Need help with this, please show me where to plot the two points on the graph as well. Thanks!
Economic s
In the country of Krugman, a business spent $100 million building a factory. GDP eventually increased by 200
million. People spend 11% of every dollar on imports. What is the marginal propensity to consume in this
economy? Write your answer as a number, between 0 and 1. If you think the answer is 0, write 0.00, not 0.
Answer:
Study the graph below. When will the multiplier be biggest?
Select one:
The multiplier will be the same size no matter what Aggregate Demand is
b. The multiplier will be one no matter what aggregate demand is
When aggregate demand is at AD1
d. When aggregate demand is at AD3
e When aggregate demand is at AD2
Price Level
AD₁
AS
e All of these are true
AD₂
AD₁
GDP
Why is potential output called potential, when it is not actually the most the economy can produce?
Select one:
a. Because potential is the most the economy can produce right now, with the technology and workers
and equipment we have right now.
Ob. Because economists just like to be confusing for no reason…
Chapter 24 Solutions
Principles of Economics (12th Edition)
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- suppose the government wishes to illuminate recessionary of a gdp of 100 billion in the MPC is .075. How much must the government increase in spending? Instead of increasing government spending by the amount you calculated what would be the effect of the government decreasing taxes by this amount explain?arrow_forwardSuppose the MPC = 0.6? What will be the government spending multiplier? If, in this economy, government spending (G) increases by $300, what will happen to Total Spending? Show your workarrow_forwardUse the following information on economy X to answer the questions below.Consumption function: C = 250 + 0.8Y Investment spending: I = 150 Government spending: G = 500 Exports of goods and services: X = 200 Imports of goods and services: Z = 150 Proportional tax rate: t =25%Full employment level of income = 3575 1. Calculate total autonomus spending for economy X. 2. Calculate the multiplier for economy X.arrow_forward
- Using the table below to answer the following questions. Assume all values represent trillions of dollars. Construct a graph of the Aggregate planned expenditure What is the equilibrium expenditure? Explain what happens at a real GDP of $4 trillion dollars. (Note the aggregate expenditures and the effects on inventories) What are your total autonomous expenditures? What is the marginal propensity to consume? Ignoring imports and income taxes, what is the multiplier? If investment increases by $1.5 trillion, what is the change in real GDP?arrow_forwardExplain graphically the determination of equilibrium GDP for a private economy through the aggregate expenditures model. Assume the MPC is .75. Now add government purchases (any amount you choose) to your graph, showing its impact on equilibrium GDP. Finally, add taxation (any amount of lump-sum tax that you choose) to your graph and show its effect on equilibrium GDP. Looking at your graph, determine whether equilibrium GDP has increased, decreased, or stayed the same given the sizes of the government purchases and taxes that you selected. Specify the level of GDP initially, the amount of Government Purchases, the amount of Taxes, and the ending amount of GDP if different from the original.arrow_forwardPlease answer everything in the photo including the graph.arrow_forward
- Pretend you are a member of the Council of Economic Advisers and are trying to persuade the members of the House Appropriations Committee to purchase $100 billion worth of new materials, in part to stimulate the economy. Explain to the members how the multiplier process will work.arrow_forwardSuppose that the consumer’s consumption demand function is given by Cd = 0.8(Y−T)+10. Investment is Id = 20, government expenditure is G = 10, and tax is T = 10. What is the equilibrium GDP (income)? Suppose that government expenditure increases by 10 units while tax is unchanged. How will GDP change? What is the multiplier? Suppose that government expenditure increases by 10 units while tax also increases by 10 units. How will GDP change? What is the multiplier?arrow_forwardConsider the hypothetical country of Kejimkujik. Suppose that national income in Kejimkujik is $300 billion, households pay $100 billion in taxes, household consumption is equal to $160 billion, and the marginal propensity to consume (MPC) is 0.6. On the following graph, use the blue line (circle symbol) to plot the economy's consumption function. Consumption Function050100150200250300350400450500500450400350300250200150100500CONSUMPTION (Billions of dollars)DISPOSABLE INCOME (Billions of dollars) Suppose now that Kejimkujik’s national income increases to $330 billion. Assuming the amount paid in taxes is fixed at $100 billion and that MPC = 0.6, what is the new amount of household consumption? $148 billion $219.4 billion $220.6 billion $178 billionarrow_forward
- Answer fastarrow_forwardIf the current value of GDP is $13.28 trillion and the government is planning to increase spending by $800 billion (all in one year), the percentage increase in GDP using the multiplier estimate of the first economist is percent. (Round your response to two decimal places.)arrow_forwardI'm doing economics homework and I'm being asked to find the multiplier when the MPS is 0.12 and MPC is 0.88. I'm trying to follow the formula and not sure where I'm getting lost.arrow_forward
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