ECONOMICS W/CONNECT+20 >C<
20th Edition
ISBN: 9781259714993
Author: McConnell
Publisher: MCG CUSTOM
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Chapter 31, Problem 5DQ
To determine
The aggregate expenditure model.
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Please I need an explanation on this question.
Suppose consumption function is specified as C= $200 + 0.75Ya planned investment is $600, net taxes are $400, and
government spending totals $500 of a hypothetical economy in 2020. Find algebraically: LO 3
A. The equilibrium level of aggregate output by equating aggregate output and planned aggregate expenditure.
B. Consumption when aggregate output is at the equilibrium level.
C. Saving when aggregate output is at the equilibrium level.
D. Establish that leakages equal injections at the equilibrium level of aggregate output.
ADVANCED ANALYSIS Assume that the consumption schedule for a private open economy is such that consumption C= 60 +
08Y Assume further that planned investment lo government spending G, and net exports X are independent of the level
of real GDP nd constant at lg 40, G= 0, and Xp= 10. Recall also that, in equilibrium, the real output produced () is equal to
aggregate expenditures: Y= C+lg+ G+ Xp
Instructions: Round your answers to the nearest whole number.
a. Calculate the equilibrium level of income or real GDP for this economy
S 1050
b. What happens to equilibrium Yif lg changes to 20?
950
What does this outcome reveal about the size of the multiplier?
Multiplier=
Chapter 31 Solutions
ECONOMICS W/CONNECT+20 >C<
Ch. 31.2 - Prob. 1QQCh. 31.2 - Prob. 2QQCh. 31.2 - Prob. 3QQCh. 31.2 - Prob. 4QQCh. 31.7 - Prob. 1QQCh. 31.7 - Prob. 2QQCh. 31.7 - Prob. 3QQCh. 31.7 - Prob. 4QQCh. 31 - Prob. 1DQCh. 31 - Prob. 2DQ
Ch. 31 - Prob. 3DQCh. 31 - Prob. 4DQCh. 31 - Prob. 5DQCh. 31 - Prob. 6DQCh. 31 - Prob. 7DQCh. 31 - Prob. 8DQCh. 31 - Prob. 1RQCh. 31 - Prob. 2RQCh. 31 - Prob. 3RQCh. 31 - Prob. 4RQCh. 31 - Prob. 5RQCh. 31 - Prob. 6RQCh. 31 - Prob. 7RQCh. 31 - Prob. 8RQCh. 31 - Prob. 9RQCh. 31 - Prob. 1PCh. 31 - Prob. 2PCh. 31 - Prob. 3PCh. 31 - Prob. 4PCh. 31 - Prob. 5PCh. 31 - Prob. 6PCh. 31 - Prob. 7PCh. 31 - Prob. 8PCh. 31 - Prob. 9PCh. 31 - Prob. 10P
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Similar questions
- Answer questions C and D thank youarrow_forward2. L Give Up! Suppose the Japanese economy has been experiencing slow growth. As a result, the Prime Minister, who thinks John Maynard Keynes was the greatest economist ever, has decided to increase government spending. The Prime Minister asks the head of the economic council to determine the increase in government spending necessary to bring the economy to full employment. Assume there is a GDP gap of 1 trillion yen and the marginal propensity to consume (MPC) is 0.60. What advice should the head of the economic council give the Prime Minister? O The recessionary gap is equal to 400 billion yen. O The inflationary gap is equal to 400 billion yen. O The recessionary gap is equal to 625 billion yen. O The inflationary gap is equal to 625 billion yen.arrow_forward4. Other things equal, what effect will each of the following changes independently have on the equilibrium level of real GDP in a private closed economy? LO11.5 a. A decline in the real interest rate. b. An overall decrease in the expected rate of return on investment. c. A sizable, sustained increase in stock prices.arrow_forward
- I need help on this questionarrow_forwardIf government spending rises by $100, mps = 0.2, then the GDP multiplier is O 5 O 4 O 1arrow_forwardFigure: Aggregate Expenditures Curve II Aggregate expenditures (per year) $800 Reference: Ref 11-16 45-degree line AE $2,000 Real GDP (per year) (Figure: Aggregate Expenditures Curve II) The slope of the aggregate expenditures curve in the aggregate expenditures model shown in this figure is: O 45 degrees. O 0.6. O 0.5. O 0.25.arrow_forward
- Explanation pleasearrow_forwardRefer to the Table. The government spending multiplier in this economy is Planned Output (Income) Taves Consumption Savings Investment 1000 L100 Net Planned 200 680 120 200 200 140 200 200 1,200 200 200 200 840 160 1300 1400 1.500 920 200 200 200 LORO 200 1600 1,160 240 2. 4. 5. 10.arrow_forward4arrow_forward
- Assume a closed economy, that taxes are fixed, and the marginal propensity to consume is equal to 0.66. What is the government spending multiplier? O 1.51 3.33 3.03 33.3arrow_forwardGiven that marginal propensity to save (MPS) is 0.5, what is the multiplier? O 2 O 4 0.5arrow_forwardADVANCED ANALYSIS Assume that the consumption schedule for a private closed economy is such that consumption is: C = 100 + 0.75Y Assume further that planned investment Ig is independent of the level of real GDP and constant at Ig = 50. Recall also that, in equilibrium, the real output produced (Y) is equal to aggregate expenditures: Y = C + Ig Instructions: Enter your answers as whole numbers.a. Calculate the equilibrium level of income or real GDP for this economy. Equilibrium GDP (Y) = $ . b. What happens to equilibrium GDP if Ig changes to 60? Equilibrium GDP (Y) = $ . What does this outcome reveal about the size of the spending multiplier? Spending multiplier = .arrow_forward
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