Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 34, Problem 4QCMC
To determine
Multiplier effect.
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If investment increases by $50 billion, by how much will aggregate demand change?
Aggregate demand will _______.
A.
increase by less than $50 billion because there will be fewer goods and services produced for consumption expenditure
B.
increase by more than $50 billion because the increase in aggregate income induces an increase in consumption expenditure
C.
probably decrease by $50 billion, but it depends on the change in aggregate supply
D.
increase by exactly $50 billion because investment is a component of aggregate demand
Economics
What is the effect of an increase in investment?
When investment increases,
A. aggregate demand increases and income increases. The increase in income induçes an increase in consumption expenditure so aggregate demand increases by more than the initial increase in investment
B. aggregate demand increases and aggregate supply increases
C. aggregate demand increases by an amount equal to the increase in investment
O D. aggregate supply increases. The increase in aggregate supply is greater than the increase in investment because capital increases, which increases potential GDP
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Chapter 34 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
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- The tax rate is 0.4. The marginal propensity to import is 0.5 . When real GDP increases from $20,000 to $20,198, consumption increases from $18,000 to $18,050. What is the marginal propensity to consume?arrow_forwardd. Now G assumes its original value of G = 800. Congress decreases the tax rate from (1/2) to (1/4). i) Use a model to sketch the effect of the decrease in the tax rate when the price level is held constant. ii) What is the new marginal propensity to consume? iii) Calculate the new equilibrium level of income.arrow_forwardConsider a tax cut which affects not only consumer disposable income, but also after-tax earnings from labor supplied to labor markets and from financial assets acquired through saving. In the long run we would expect this tax cut to A decrease the level of real GDP. B decrease the price level. C increase both the price level and the level of real GDP. D decrease the price level and increase the level of real GDP.arrow_forward
- Calculate the total change in aggregate spending if investment decreases by $250 billion and the marginal propensity to consume is 0.9. Instructions: Enter your response as a whole number. Aggregate demand decreases by $ ________billion.arrow_forwardCONSUMPTION (Billions of dollars) ng.cengage.com Lesson 6 Discussion Forum ART-1035-U01 - Introduction to Art Mind Tap - Cengage Learning CENGAGE MINDTAP Q Search this course Aplia Homework: Aggregate Expenditure and Aggregate Demand Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.50. That is, if disposable income increases by $1, consumption increases by 50¢. Suppose further that last year disposable income in the economy was $350 billion and consumption was $300 billion. Z-V On the following graph, use the blue line (circle symbol) to plot this economy's consumption function based on these data. E 009 oSuog DISPOSABLE INCOME (Billions of dollars) billion and the marginalbropensity to save in this From the preceding data, you know that the level of saving in the economy last year was economy is M-cBook Al IN F8 F12 F11 F6 888 dele %23 24 8. 6. 9. 7. 3. 4. P. R. H.arrow_forwardWhich of the following would be most likely to increase consumption spending? Selected answer will be automatically saved. For keyboard navigation, press up/down arrow keys to select an answer. a A reduction in consumer credit card debt b A drop in stock prices c A higher interest rate d The expectation of lower future pricesarrow_forward
- A drop in the price level will have what effect in the aggregate demand model and the income-expenditure model?A.decreases aggregate demand and planned expenditures.B.increases aggregate demand, but decreases planned expenditures.C.decreases aggregate quantity demanded, but increases planned expenditures.D.increases aggregate quantity demanded and planned expenditures.arrow_forwardAssume that the marginal propensity to consume is 0.6 and potential output is $1000 billion. If real GDP is $1100 billion: Select one: a. there is an inflationary gap. b. the economy is in long-run equilibrium. c. there is a recessionary gap. d. government transfers should be decreased.arrow_forwardExplanationarrow_forward
- Question:4,5arrow_forwardWhich of the following would be most likely to increase consumption spending? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a A reduction in consumer credit card debt b A drop in stock prices A higher interest rate d The expectation of lower future pricesarrow_forwardWhich of the following tax policies is most likely to increase investment and long-run aggregate supply? a. a cut in the corporate profit tax b. an increase in the corporate profit tax c. a generous investment tax credit d. a cut in personal income taxesarrow_forward
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