Assume that people will spend $0.60 of every extra dollar they earn. Further assume that the real interest rate decreases, and this causes gross private investment to increase by $75 billion. Determine the change in aggregate demand.
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- If firms are less optimistic that future profits will rise and remain strong for the next few years, then: Select one: a. investment spending will fall. b. investment spending will rise. c. investment spending will remain unaffected. d. investment spending will rise at first, then fall.Assume taxes are zero and an economy has a consumption function of C = 0.80 (Yd) + $879.06. How much savings take place if disposable income is equal to 3,258.02? Round your answer to two digits after the decimal and include a negative sign if you find negative savings which is borrowing.Compare the impact of a recession that reduces consumer income by 10 percent on the consumption of durable goods and house rentals. Suppose that the income elasticity of demand for durable goods is 1.5 and the income elasticity of demand for house rentals is 0.3. Based on your response, make a policy argument to support through government funding either businesses or house rentals.
- Using taxes as a function of income, derive and explain the investment multiplierWhich 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 pricesa tax decrease will decrease consumption a tax increase will increase consumption consumption and after-tax income are unrelated consumption varies inversely with after-tax incomes consumption varies directly with after-tax incomes
- Suppose that the recent economic outlook in the country of Mountainia has been the opposite. Businesses have postponed planned investments and have begun to accumulate cash. If businesses in Mountainia postpone $12 billion of their planned investments, what would be the maximum expected change in GDP if its marginal propensity to save (MPS) is 0.05? $ billionFind the value of the aggregate demand when the consumption demand is $130 and the invesment demand is $210Suppose the marginal propensity to consume equals 0.8 (i.e., c1 = 0.8). Given this information, which of the following events will cause the largest increase in output? Select one or more: a. Public spending, G, increases by 200 b. real GDP was larger than nominal GDP from 2002 to 2008 Public spending, G, increases by 150 c. Investment, I, increases by 150 d. Taxes, T, decrease by 200
- Suppose a closed economy has an aggregate consumption function given by C = 50 + 0.50Yd and generates $2500 output and income in equilibrium. Suppose also that the government spends 400 and imposes a lump-sum tax of 100. What is the level of intended investment?Consider the households in the US that held sub-prime mortgages before/during the financial crisis. Assuming high levels of debt and low job security (both features of sub-prime mortgage holders), are these sub-prime households more likely to have a large or a small marginal propensity to consume out of income? Provide reasons for your answer.Given consumption = 100 +0.75Yd Tax = 50 + 0.5Y Export = 200 Import = 50 + 0.25Y Government spending = 150 Investment = 200 (a) Determine the value of the economy’s multiplier, which is applicable to government spending, and interpret it.