Q: What would happen to multiplier if investment were to be positively related to income?
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A: HERE we can calculate the given as follow
Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy’s multiplier is 4.
b. In what direction and by how much will it eventually shift?
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- 1. What would happen to multiplier if investment were to be positively related to income? 2. is it possible for total saving to fall when people beome more thirfty? 3. What is meant by multiplier?Why shoul the value of multiplier rise when people spend more on consumption?2. In a closed economy with no government, a $1 billion increase in initial spending leads to a $5 billion increase in total income or output. a. What is the multiplier? b.What is the value of marginal propensity to save? c.What is the value marginal propensity to consume?1. Suppose your annual income is $82,000 this year and it is expected to increase 25% next year. The market interest rate is 3%. a. Please illustrate all possible consumption patterns with a figure. Do not forget to label your axes. b. You believe that your consumption this year and your consumption next year should be the same. If you follow your plan and consume equally in those two years, how much should you save or borrow this year?
- The paradox of saving revisited You should be able to complete this question without doing any algebra, although you may find making a diagram helpful for part (a). For this problem, you do not need to calculate the magnitudes of changes in economic variables—only the direction of change. a. Consider the economy described in Problem 8. Suppose that consumers decide to consume less (and therefore to save more) for any given amount of disposable income. Specifically, assume that consumer confidence (c0) falls. What will happen to output? b. As a result of the effect on output you determined in part (a), what will happen to investment? What will happen to public saving? What will happen to private saving? Explain. (Hint: Consider the saving-equals-investment characterization of equilibrium.) What is the effect on consumption? c. Suppose that consumers had decided to increase consumption expenditure, so that c0 had increased. What would have been the effect on output,…Given Co = 400 and MPC=0.70 Find Consumption when Yd = 2000 and when Yd = 3000. Calculate Savings for both these levels of disposable income and consumption. Calculate MPS. Does MPS + MPC = 1? If autonomous consumption increases by $50. What is the multiplier? What is the change in total spending? Use a diagram to show which curve shifts and how.Table 2 shows elements in the national income accounts of an economy. Assume the economy is currently in equilibrium. elements billions Consumption (total) 80 Investment 9 Government Expenditure. 6 Imports 15 Exports 8 C) If national income now rises by £22 billion and as a result, the consumption of domestically produced goods rises to £80 billion. Calculate the marginal propensity to consume (MPC). D) What is the value of the multiplier? E) Comment on the results in part (c) and (d).
- Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. Consumption and the multiplier: Show how to derive an IS curve that includes the consumption multiplier. That is show how to derive equation (11.16(below)). Draw a graph of the original IS curve and the IS curve that includes the multiplier. Which one is flatter and why? (11.16) Y~=[1/(1-x-bar)] x [a-bar - b-bar(Rt - r-bar)] ^multiplier ^original IS curvesuppose the wealth effect is such that a $10 change in wealth produces a $2 change in consumption at each level of income. assume real estate prices tumble such that wealth declines by $160. A. What will be the new level of consumption at the $680 billion level of disposable income? B. What will be the new level of savings?6. Is the relationship between changes in spending and changes in real GDP in the multiplier effect a direct (positive) relationship or is it an inverse (negative) relationship? How does the size of the multiplier relate to the size of the MPC? The MPS? What is the logic of the multiplier-MPC relationship?
- 47)Which one is TRUE? Select one: a. The larger the MPC, the smaller the multiplier. b. The multiplier is the ratio of the change in autonomous expenditure to the change in real GDP c. The real world multiplier is larger than the textbook multiplier when we take into account the impact of changes in GDP on imports, inflation and the interest rate. d. The real world multiplier is smaller than the textbook multiplier when we take into account the impact of changes in GDP on imports, inflation and the interest rate.Consider an economy described by the following equations:Y=C + I +GY=7,000G=4000T=2,000C=150+0.75(Y-T)I=1,000-50ra. In this economy, compute private saving, public saving and national saving.b. Calculate the equilibrium interest rate.c. Now suppose the G rises by 1,000. Compute private saving, public saving, and nationalsaving.d. Calculate the new equilibrium interest rate. Answer only part c and d in this question as I have attempted first two parts already.2. Suppose that consumption equals $500 billion when the disposable income is $0 and that each increase of $100 billion in disposable income causes consumption to increase by $70 billion. a. Draw a graph of the consumption function using this information. The axes must be labeled correctly, and the consumption function should have at least two points on the graph (correct coordinates). b. What is the Marginal Propensity to Consume in this economy? How did you arrive at your answer? Please show your work. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.