uppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left ver. The following graph plots the economy's initial aggregate demand curve (AD1). uppose now that the government increases its purchases by $2.5 billion. se the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place. int: Be sure the new aggregate demand curve (AD2) is parallel to AD1. You can see the slope of AD1 by selecting it on the following graph. (? 116 114 112 110 108 106 104 102 100 AD₁ 100 102 106 108 110 OUTPUT (Billions of dollars) 104 112 114 116 -A Δ AD2 | AD 3

uppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left ver. The following graph plots the economy's initial aggregate demand curve (AD1). uppose now that the government increases its purchases by $2.5 billion. se the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place. int: Be sure the new aggregate demand curve (AD2) is parallel to AD1. You can see the slope of AD1 by selecting it on the following graph. (? 116 114 112 110 108 106 104 102 100 AD₁ 100 102 106 108 110 OUTPUT (Billions of dollars) 104 112 114 116 -A Δ AD2 | AD 3

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section: Chapter Questions

Problem 1TY

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Suppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (AD1AD1). Suppose now that the government increases its purchases by $2.5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2AD2) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2AD2) is parallel to AD1AD1. You can see the slope of AD1AD1 by selecting it on the following graph. The following graph plots equilibrium in the money market at an interest rate of 3% and a quantity of money equal to $15 billion. Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. Suppose that for every increase in the interest rate of one percentage point, the level of investment spending…
Consider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The following graph shows the economy's initial aggregate demand curve (AD1AD1). Suppose the government increases its purchases by $3 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2AD2) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2AD2) is parallel to AD1AD1. You can see the slope of AD1AD1 by selecting it on the following graph.
Consider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The following graph shows the economy's initial aggregate demand curve (AD1AD1). Suppose the government increases its purchases by $3 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2AD2) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2AD2) is parallel to AD1AD1. You can see the slope of AD1AD1 by selecting it on the following graph. Suppose that for each one-percentage-point increase in the interest rate, the level of investment spending declines by $0.5 billion. The change in the interest rate (according to the change you made to the money market in the previous scenario) therefore causes the level of investment spending to Fall/Rise by 2 ,1, or 0.5 Billion. After the multiplier effect is accounted for, the change in investment spending…
Suppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (AD1AD1). Suppose now that the government increases its purchases by $3.5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2AD2) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2AD2) is parallel to AD1AD1. You can see the slope of AD1AD1 by selecting it on the following graph. AD2AD3100102104106108110112114116116114112110108106104102100PRICE LEVELOUTPUT (Billions of dollars)AD1
Pretend you are a member of the Council of Economic Advisers and are trying to persuade the members of the House Appropriations Committee to purchase $100 billion worth of new materials, in part to stimulate the economy. Explain to the members how the multiplier process will work.
In economics, the multiplier effect refers to the fact that when there is an injection of money to consumers, the consumers spend a certain percentage of it. That amount recirculates through the economy and adds additional income, which comes back to the consumers and of which they spend the same percentage. This process repeats indefinitely, circulating additional money through the economy. Suppose that in order to stimulate the economy, the government institutes a tax cut of $8 billion. If taxpayers are known to save 7% of any additional money they receive, and to spend 93%, how much total money (T) will be circulated through the economy by that single $10 billion tax cut?
Which of the following is a true statement about the multiplier? The formula for the multiplier overstates the real world multiplier when we take into account the impact of changes in GDP on imports, inflation and the interest rate. The larger the MPC, the smaller the multiplier. The multiplier is the ratio of the change in spending to the change in GDP. The multiplier makes the economy less sensitive to changes in autonomous expenditure.
If the multiplier is 5, then the MPC is Answer 0.05 0.5 0.6 0.8 Question 43 In a certain economy, when income is $200, consumer spending is $145. The value of the multiplier for this economy is 6.25. It follows that, when income is $230, consumer spending is Answer $151.25. $166.75. $170.20. $175.00.
Consider the hypothetical country of Kejimkujik. Suppose that national income in Kejimkujik is $300 billion, households pay $100 billion in taxes, household consumption is equal to $160 billion, and the marginal propensity to consume (MPC) is 0.6. On the following graph, use the blue line (circle symbol) to plot the economy's consumption function. Consumption Function050100150200250300350400450500500450400350300250200150100500CONSUMPTION (Billions of dollars)DISPOSABLE INCOME (Billions of dollars) Suppose now that Kejimkujik’s national income increases to $330 billion. Assuming the amount paid in taxes is fixed at $100 billion and that MPC = 0.6, what is the new amount of household consumption? $148 billion $219.4 billion $220.6 billion $178 billion
The following are exogenous (not directly affected by income): G = 9 I = 14 X = M = 0 The consumption function is: C = k + cY, where k = 8, c = 0.6 What is the equilibrium level of GDP? State to ONE decimal place What is the multiplier for this economy? The following are exogenous (not directly affected by income): G = 11 I = 4 X = M = 0 The consumption function is: C = k + cY, where k = 3, c = 0.8 What is the equilibrium level of GDP? What is the multiplier? Same information as in the previous question: The following are exogenous (not directly affected by income): G = 11 I = 4 X = M = 0 The consumption function is: C = k + cY, where k = 3, c = 0.8 Imagine the maximum potential output or real GDP of this economy is 100. Assume that is the same as saying we reach the edge of the PPF at 100. Now assume we want to get that economy from the current level of GDP to its maximum potential of 100. We can do this in two ways - either increase government spending (G) or reduce taxes, (we…
. Explain how MPC and the multiplier effect would impact a government’s attempt to stimulate its economy in each of the following scenarios. To stimulate the economy already in a serious recession, the government spends a total of $700 million to send each person a stimulus check of $600. To stimulate the economy already in a serious recession, the government spends a total of $700 million to construct nationwide highspeed internet infrastructure so that all areas of the country, especially the rural areas will have highspeed internet service. Explain why one of these scenarios is likely to have a greater overall impact on this economy.