Assuming that the aggregate price level is constant, the interest rate is fixed, and there are no taxes and no foreign trade, what will be the change in GDP if the fol- lowing events occur? a. There is an autonomous increase in consumer spending of $25 billion; the marginal propensity to consume is 2/3. b. Firms reduce investment spending by $40 billion; the marginal propensity to consume is 0.8. c. The government increases its purchases of military equipment by $60 billion; the marginal propensity to consume is 0.6.
Assuming that the aggregate price level is constant, the interest rate is fixed, and there are no taxes and no foreign trade, what will be the change in GDP if the fol- lowing events occur? a. There is an autonomous increase in consumer spending of $25 billion; the marginal propensity to consume is 2/3. b. Firms reduce investment spending by $40 billion; the marginal propensity to consume is 0.8. c. The government increases its purchases of military equipment by $60 billion; the marginal propensity to consume is 0.6.
Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?
Section: Chapter Questions
Problem 7TY
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Transcribed Image Text:2. Assuming that the aggregate price level is constant,
the interest rate is fixed, and there are no taxes and no
foreign trade, what will be the change in GDP if the fol-
lowing events occur?
a. There is an autonomous increase in consumer
spending of $25 billion; the marginal propensity to
consume is 2/3.
b. Firms reduce investment spending by $40 billion;
the marginal propensity to consume is 0.8.
c. The government increases its purchases of military
equipment by $60 billion; the marginal propensity to
consume is 0.6.
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