Suppose the marginal propensity to consume is 0.8 and there is a $120 billion increase in government expenditures. Crowding out is equal to $50 billion. This increase in government spending would increase aggregate demand by Suppose now that consumers save all of the extra income they receive. Assume crowding out is now $10 billion. Then this increase in government spending would increase aggregate demand by

Suppose the marginal propensity to consume is 0.8 and there is a $120 billion increase in government expenditures. Crowding out is equal to $50 billion. This increase in government spending would increase aggregate demand by Suppose now that consumers save all of the extra income they receive. Assume crowding out is now $10 billion. Then this increase in government spending would increase aggregate demand by

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter18: Debates In Macroeconomics Over The Role And Effects Of Government

Section: Chapter Questions

Problem 1WNG

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The marginal propensity to consume (MPC) for this econamy is . and the spending multiplier for this economy is Suppose the govemment in this economy decides to decrease govemment purchases by $250 bilion. The decrease in government purchases will lead to a decrease in income, generating an initial change in consumption equal to second change in consumption equal to This decreases income yet again, causing a The total change in demand resulting from the initial change in government spending is The following graph shows the aggregate demand curve (AD ) for this economy before the change in govemment spending. Use the green line (trangie symbol) to plot the new aggregate demand curve (AD:) after the multiplier effect takes place. For simplioity, assume that there is no "crowding out." Hint: Be sure that the new aggregate demand curve (AD) is paralel to the initial aggregate demand curve (AD). You can see the slope of AD by selecting t on the graph. 540 AD. AD, 130 100 OUTPUT (Tions of…
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Attempts 10. Crowding out effect Keep the Highest/2 Suppose economists observe that an increase in government spending of $13 billion raises the total demand for goods and servic If these economists ignore the possibility of crowding out, they would estimate the marginal propensity to consume (MPC) to be Now suppose the economists allow for crowding out. Their new estimate of the MPC would be than their initial one. Grade It Now 3/4 1/4 4 52 billion. Save & Continue
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