EBK MACROECONOMICS
7th Edition
ISBN: 9780134738970
Author: O'Brien
Publisher: PEARSON CUSTOM PUB.(CONSIGNMENT)
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Chapter 10, Problem 10.2.9PA
To determine
The calculation of saving and investment.
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The Following Questions include graphs that I cannot upload if you can please help with visuals also, thank you. The following graph shows the consumption function (C) for a hypothetical private closed economy and a 45-degree line along which aggregate expenditure equals real GDP (AE=Y). Recall that a private closed economy does not have government and does not trade with the rest of the world (so G=0 and (X-M)=0). In a private closed economy, real GDP is equal to disposable income. At the current real interest rate, the level of investment in this economy is equal to $50 billion at each level of real GDP. Use the blue line (circle symbols) to plot this economy's initial aggregate expenditure line, (C + I). Then, use the black point (X symbol) to indicate this economy's initial equilibrium output. Dashed drop lines will automatically extend to both axes. (Hint: You can see two of the coordinates along the consumption function by mousing over the green triangles on the graph.) At the…
Use the graph to answer the following questions:
a)what is the value of the MPC?
b)what is the value of the MPS?
What do you mean by multiplier
Chapter 10 Solutions
EBK MACROECONOMICS
Ch. 10 - Prob. 10.1.1RQCh. 10 - Prob. 10.1.2RQCh. 10 - Prob. 10.1.3RQCh. 10 - Prob. 10.1.4RQCh. 10 - Prob. 10.1.5PACh. 10 - Prob. 10.1.6PACh. 10 - Prob. 10.1.7PACh. 10 - Prob. 10.1.8PACh. 10 - Prob. 10.1.9PACh. 10 - Prob. 10.1.10PA
Ch. 10 - Prob. 10.1.11PACh. 10 - Prob. 10.1.12PACh. 10 - Prob. 10.1.13PACh. 10 - Prob. 10.1.14PACh. 10 - Prob. 10.2.1RQCh. 10 - Prob. 10.2.2RQCh. 10 - Prob. 10.2.3RQCh. 10 - Prob. 10.2.5PACh. 10 - Prob. 10.2.6PACh. 10 - Prob. 10.2.7PACh. 10 - Prob. 10.2.8PACh. 10 - Prob. 10.2.9PACh. 10 - Prob. 10.2.10PACh. 10 - Prob. 10.2.11PACh. 10 - Prob. 10.2.12PACh. 10 - Prob. 10.2.13PACh. 10 - Prob. 10.2.14PACh. 10 - Prob. 10.2.15PACh. 10 - Prob. 10.2.17PACh. 10 - Prob. 10.3.2RQCh. 10 - Prob. 10.3.3RQCh. 10 - Prob. 10.3.4PACh. 10 - Prob. 10.3.5PACh. 10 - Prob. 10.3.6PACh. 10 - Prob. 10.3.7PACh. 10 - Prob. 10.3.8PACh. 10 - Prob. 10.3.9PACh. 10 - Prob. 10.1RDECh. 10 - Prob. 10.2RDECh. 10 - Prob. 10.3RDECh. 10 - Prob. 10.2CTE
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- On the following graph, show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves. Supply X Demand 2 10 20 30 40 50 QUANTITY OF LOANABLE FUNDS (Billions of dollars) 12 IN TEREST RATE 10 0 0 60 ģ Demand Supply ? Suppose that for each one-percentage-point increase in the interest rate, the level of investment spending declines by $1.25 billion. by According to the change you made to the loanable funds market in the previous scenario, the increase in government purchases causes the interest rate in the money market to from 6% to %. The change in the interest rate causes the level of investment spending to $ billion. by After the multiplier effect is accounted for, the change in investment spending will cause the quantity of output demanded to $ billion at each price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is known as the effect. Place the purple line (diamond…arrow_forwardExplain carefully: “A change in the price level shifts the aggregate expenditures curve but not the aggregate demand curve.”arrow_forwardIf government spending as a percent of potential GDP had just risen from 18% to 20%, what does the spending allocation model predict would be happening in our economy to consumption, investment, and net exports? Sketch out the spending allocation diagram and show any changes that might have occurred.arrow_forward
- What is the definition for the multiplier processarrow_forwardShow on a graph of the market for saving and investment the effect of the following. (The graph is a basic savings and investment graph). In an effort to improve fiscal conditions, policymakers raise taxes. This results in lower disposable income. Real interest rate (percent per year) 10. 8 6 4 2 SLF 0 1.2 1.4 1.6 DLF 2.0 2.2 1.8 Loanable funds (trillions of 2009 dollars) The savings function [Select] The investment function [Select] The real interest rate [Select] The level of savings and investment [Select]arrow_forwardWhat is the difference between consumption and autonomous consumption?arrow_forward
- The following graph shows the loanable funds market in equilibrium at an interest rate of 3%. On the following graph, show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves. Supply Demand Supply Demand 10 20 QUANTITY OF LOANABLE FUNDS (BIllons of dollars) Suppose that for each one-percentage-point increase in the interest rate, the level of investment spending declines by $1 billion. According to the change you made to the loanable funds market in the previous scenario, the increase in government purchases causes the interest rate in the money market to from 3% to The change in the interest rate causes the level of investment spending to by bilion. After the multiplier effect is accounted for, the change in investment spending will cause the quantity of output demanded to by bilion at each price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is known as the…arrow_forwardBriefly explain the role played by banks between savers and borrowers and how the economy benefits (or not) from their taking on this role.arrow_forwardUse the diagram to answer the question which one of the following will increase the size of the multiplier? A. an increase in the level of net exports B. An increase in the marginal propensity to consume C. an increase in the marginal propensity to save D. a reduction in the level of government spendingarrow_forward
- What is the aggregate expenditures function?arrow_forwardAgreement and disagreement among economists Suppose that Musashi, an economist from a business administration program in Georgia, and Rina, another economist from a nonprofit institution in the Midwest, are both guests on a popular science podcast. The host of the podcast is facilitating their debate over saving incentives. The following dialogue represents a portion of the transcript of their discussion: Rina: I think it's safe to say that, in general, the savings rate of households in today's economy is much lower than it really needs to be to sustain an improvement in living standards. Musashi: I think a switch from the income tax to a consumption tax would bring growth in living standards. Rina: You really think households would change their saving behavior enough in response to this to make a difference? Because I don't. The disagreement between these economists is most likely due to DIFFERENCES BETWEEN PERCEPTION VERSUS REALITY or DIFFERENCES IN SCIENTIFIC JUDGEMENTS…arrow_forwardClick on the icon to read the news clip, then complete the following steps. Business inventories fall when real GDP rises because 1800- 1600- Aggregate expenditure (billions of 2002 dollars) ○ A. inventories are falling from above target to their target levels 1400- B. firms put more production time into producing consumption goods and services OC. firms put more production time into producing exports 1200- OD. both B and C are correct 1000- The graph shows the aggregate planned expenditure curve. Draw a new AE curve to show the effect of an increase in exports and business investment. Label it AE₁. 8004 800 1000 1200 1400 45 degree line G AE 1600 1800 Draw a point at the new equilibrium expenditure. Draw an arrow along the new AE curve to show the effect of the increase in real GDP on consumption expenditure. Real GDP (billions of 2002 dollars) >>> Draw only the objects specified in the question. - News clip Business Inventories Decline, GDP Rises Real gross domestic product (GDP)…arrow_forward
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