Answered: The larger the ________, the smaller is…

The larger the ________, the smaller is the effect on aggregate expenditure from a change in investment. i. marginal propensity to consume ii. marginal tax rate iii. marginal propensity to import

Macroeconomics: Principles and Policy (MindTap Course List)

13th Edition

ISBN:9781305280601

Author:William J. Baumol, Alan S. Blinder

Publisher:William J. Baumol, Alan S. Blinder

Chapter8: Aggregate Demand And The Powerful Consumer

Section: Chapter Questions

Problem 8DQ

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Question

The larger the ________, the smaller is the effect on aggregate expenditure from a change in investment.

i. marginal propensity to consume

ii. marginal tax rate

iii. marginal propensity to import

A. i, ii, iii

B. i only

C. ii and iii

D. i and iii

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(a)‌Elaborate‌ ‌‌THREE‌ ‌(3)‌ ‌determinants‌ ‌in‌ ‌which‌ ‌consumption‌ ‌can‌ ‌be‌ ‌increased‌ ‌according‌ ‌to‌ ‌the‌ ‌consumption‌ ‌function.‌ ‌ ‌ (b)‌Assume‌ ‌that‌ ‌a‌ ‌three-sector‌ ‌economy‌ ‌in‌ ‌Country‌ ‌W.‌ ‌The‌ ‌amount‌ ‌of‌ ‌ autonomous‌ ‌consumption‌ ‌is‌ ‌RM300‌ ‌million‌ ‌with‌ ‌the‌ ‌proportion‌ ‌of‌ ‌an‌ ‌increase‌ ‌in‌ ‌income‌ ‌that‌ ‌is‌ ‌spent‌ ‌on‌ ‌consumption‌ ‌is‌ ‌0.5.‌ ‌An‌ ‌induced‌ ‌tax‌ ‌of‌ ‌20%‌ ‌is‌ ‌imposed‌ ‌by‌ ‌the‌ ‌country.‌ ‌The‌ ‌amount‌ ‌of‌ ‌investment‌ ‌is‌ ‌RM250‌ ‌million,‌ ‌and‌ ‌the‌ ‌amount‌ ‌of‌ ‌government‌ ‌spending‌ ‌is‌ ‌RM150‌ ‌million.‌ ‌ ‌ ‌ (i)‌Calculate‌ ‌the‌ ‌national‌ ‌income‌ ‌equilibrium.‌ ‌ ‌ ‌ (ii)‌Based‌ ‌on‌ ‌your‌ ‌answer‌ ‌in‌ ‌(i),‌ ‌show‌ ‌the‌ ‌aggregate‌ ‌expenditure‌ ‌graph.‌ ‌ ‌ ‌ (iii)‌Explain‌ ‌what‌ ‌would‌ ‌happen‌ ‌to‌ ‌the‌ ‌national‌ ‌income‌ ‌equilibrium‌ ‌if‌ ‌the‌ ‌ investment‌ ‌changes‌ ‌by‌ ‌RM100‌ ‌million.‌
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