Consider a Keynesian economy with no taxes and no international trade. • The economy initially has a real GDP of $500. • Andy increases his consumption by $70 because of an increase in his wealth. He spends it on a lunch from Bernard's truck. Bernard saves a fraction of this extra disposable income, and uses the remainder to buy earrings from Chanel. • Bernard's marginal propensity to consume is 0.8. • Chanel's marginal propensity to consume is 0. What is the domestic real GDP at the end of these transactions? (Hint: real GDP must equal income, both of which must equal expenditure.) Do not enter the $ sign. Round to two decimal places if required. Answer:

Consider a Keynesian economy with no taxes and no international trade. • The economy initially has a real GDP of $500. • Andy increases his consumption by $70 because of an increase in his wealth. He spends it on a lunch from Bernard's truck. Bernard saves a fraction of this extra disposable income, and uses the remainder to buy earrings from Chanel. • Bernard's marginal propensity to consume is 0.8. • Chanel's marginal propensity to consume is 0. What is the domestic real GDP at the end of these transactions? (Hint: real GDP must equal income, both of which must equal expenditure.) Do not enter the $ sign. Round to two decimal places if required. Answer:

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 5SQP

See similar textbooks

Similar questions

The Canadian Government decides to inject $10,000,000 into the economy by increasing its spending on infrastructure. If the Marginal Propensity to Consume is .6 or 60% what will be the overall change in GDP/Real Output?
Suppose there are no imports, taxes or other leakages in the economy. If the Marginal Propensity to Consume is .75 and the government increases spending by $60 billion, by how much would output increase in the economy?
A) What is the value of the marginal propensity to consume? ( Round your answers to one decimal place). What is the value of the marginal propensity to save? B) What is the break-even level of income in the table? (Enter your answer as a whole number) What is the term that economists use for the saving situation shown at the $ 240 level of income. C) For each of the following items, indicate wheter the value in the table is either constant or variable as income changes: The MPS is (constant/ variable) as income changes. The APC is ( constant/ variable) as income changes. The MPC is ( constant/ variable) as income changes. The APS is (constant/ variable) as income chnages.
The marginal propensity to consume is 0.75. What will be the initial change in consumption when? 1) Taxes fall by $20 billion 2) Taxes rise by $40 billion 3) A recession leads to a reduction in personal income of $500 billion
Due to an increase in consumer wealth, there is a $40 billion autonomous increase in consumer spending in the economies of Westlandia and Eastlandia. Assuming that the aggregate price level is constant, the interest rate is fixed in both countries, and there are no taxes and no foreign trade, complete the accompanying tables to show the various rounds of increased spending that will occur in both economies if the marginal propensity to consume is 0.5 in Westlandia and 0.75 in Eastlandia. What do your results indicate about the relationship between the size of the marginal propensity to consume and the multiplier?
The government raises taxes by $100 billion. If the marginal propensity to consume is 0.8 What happens to the following? Do they rise or fall? By what amounts? a)Investment
Troll Island is a small island nation that recently experienced an autonomous change in aggregate expenditures (AE). AE increased by 5 billion, and the marginal propensity to consume on Troll Island is equal to 0.73. What is the change in Troll Island's real GDP after the increase in AE? Enter your answer in billions of dollars, rounded to one place after the decimal. For example, an answer of $2,500,000 should be entered as 2.5. $ ______ billion
Troll Island is a small island nation that recently experienced an autonomous change in aggregate expenditures (AE). AE increased by 77 billion, and the marginal propensity to consume on Troll Island is equal to 0.850.85. What is the change in Troll Island's real GDP after the increase in AE? Enter your answer in billions of dollars, rounded to one place after the decimal. For example, an answer of $2,500,000 should be entered as 2.5.
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
Which shows income and consumption levels for period 1 through 7, what is the marginal propensity to consume ?