The following questions are on the hypothetical economy of Jacksonland. The multiplier is the idea that a change in one of the components of the PAE, eg. C, I, G, will generate an even greater change in real GDP. For example, an increase in investment pushes the economy into an expansionary period that generates higher income levels and a sense of optimism. Increases in Cand I follow and the economy continues to expand. We use the equation AY = () x AI to measure the change in real GDP when there is a change in investment, where Y is real GDP, c is the mpc (marginal propensity to consume), and I is investment. Question 5 Suppose in the hypothetical economy of Jacksonland, the MPC is 0.80 and real GDP is $150 billion. Businesses increase investment by $5 billion. The multiplier is equal to

The following questions are on the hypothetical economy of Jacksonland. The multiplier is the idea that a change in one of the components of the PAE, eg. C, I, G, will generate an even greater change in real GDP. For example, an increase in investment pushes the economy into an expansionary period that generates higher income levels and a sense of optimism. Increases in Cand I follow and the economy continues to expand. We use the equation AY = () x AI to measure the change in real GDP when there is a change in investment, where Y is real GDP, c is the mpc (marginal propensity to consume), and I is investment. Question 5 Suppose in the hypothetical economy of Jacksonland, the MPC is 0.80 and real GDP is $150 billion. Businesses increase investment by $5 billion. The multiplier is equal to

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section9.A: The Simple Algebra Of Income Determination And The Multiplier

Problem 4TY

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Similar questions

Discuss the multiplier effect including a description of what it describes in macroeconomic terms, how it is determined and an illustration of how it is defined.
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Economists often refer to the “multiplier effect.” What is the “multiplier effect,” and how is its magnitude related to the size of the marginal propensity to consume?
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What is multiplier? Explain its forward and backward working
. Consider the multiplier model. Compare two economies, which differ only in the share of credit-constrained households, but are otherwise identical. In which economy is the multiplier larger? Use a diagram to explain your answer. ii. Based on the previous reasoning, would you expect the size of the multiplier to be larger in expansions or recessions? Why?