Suppose that a financial crisis decreases investment spending by $100 billion and the marginal propensity to consume is 0.8. Assuming no taxes and no trade, by how much will real GDP change?
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- If the government expenditures decrease by 100 million Euro and the aggregate demand decreases by 400, then the marginal propensity to consume is:In a simple economy where there is no government and no international trade, the consumption function is given by the equation: C = £130m + 0.7Y What is the marginal propensity to save? a)0.7 b)1.0 c)0.3 d)130How much more would you spend if you won a $1,000 lottery prize? Why might your average and marginal propensities to consume differ?
- In an economy with lump-sum taxes and no international trade, if the marginal propensity to consume is 0.8, which of the following is true? A. When consumption increases by RM5, investment increases by a maximum of RM1. B. When consumption increases by RM5, savings increase by a maximum of RM1. C. When investment increases by RM1, income increases by a maximum of RM5. D. When investment increases by RM1, consumption increases by a maximum of RM5.Consider two economies, A and B. Economy A has a marginal propensity to consume of 0.9, a net tax rate of 0.3 and a marginal propensity to import of 0.3. Economy B has a marginal propensity to consume of 0.9, a net tax rate of 0.1 and a marginal propensity to import of 0.3. Suppose there is an increase in autonomous investment of $5 billion in each of these economies. Which of the following statements is true? Group of answer choices There is a larger decrease in real GDP in Economy A as a result of the change in autonomous investment. There is a larger increase in real GDP in Economy B as a result of the change in autonomous investment. There is a larger increase in real GDP in Economy A as a result of the change in autonomous investment. There is an equal effect on real GDP in Economies A and B as a result of the increase in autonomous investment. There is a larger decrease in real GDP in Economy B as a result of the change in autonomous investment.Assume a country would like to increase investment by limiting consumption. What would be the point of a policy like that? What would be the impact on the economy? Who would benefit? Who would lose out?
- Using more data points results in an estimated MPC of 0.65 for Africa. In December, the Africa government announced an increase in spending of 12 billion . Assuming that everyone spends according to the MPC of 0.65, which is the maximum increase in final spending that could occur?Assuming that there is no government spending or trade, an economy’s GDP is the sum of domestic consumption C and investment I, i.e. Y = C+ I Assume that I is unaffected by GDP Assume the consumption function is C = c0 + c1Y In any equilibrium aggregate demand, AD must be equal to Y, GDP. Given this model, which FIVE of the following statements are correct? Select one or more: A. If the economy above is a demand-driven economy, then the equilibrium solution for Y is given by Y = m(c0 + I), where m = 1/(1 - c1) is the multiplier. B. if c1 = 0.8 the multiplier is equal to 1/0.8= 1.25 C. if c1 = 0.75 the multiplier is equal to 4 D. assume c0 =100, I=50, c1=0.6. The equilibrium value of Y in a demand-driven economy is 300. E. Assume that Y is initially 400, I is initially 100, and the multiplier is 2.5. I increases by 10%. The multiplier implies that in equilibrium Y will increase by 25%. F. The higher is c1 the larger is the multiplier G. If consumers…True or False (Why?): An increase in the money supply tends to decrease expenditures on consumption and on investment, ceteris paribus.
- Do you think that the marginal propensity to consume out of current income differs between tenured professors who have a high degree of job security and professional gamblers who never know when luck will strike?How does investment as defined by economists differ from investment as defifined by the general public? What would happen to the amount of investment made today if firms expected the future returns to such investment to be very low? What if firms expected future returns to be very high?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