Macroeconomics
21st Edition
ISBN: 9781259915673
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 11, Problem 5DQ
To determine
The aggregate expenditure model.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Depict graphically the aggregate expenditures model for a private closed economy. Now show a decrease in the aggregate expenditures schedule and explain why the decline in real GDP in your diagram is greater than the initial decline in aggregate expenditures. What would be the ratio of a decline in real GDP to the initial drop in aggregate expenditures if the slope of your aggregate expenditures schedule was .8?
Refer to the graph for a private closed economy. At the $150-billion level of GDP:
Select one:
a. Aggregate expenditures are less than real GDP, so GDP will rise
b. Aggregate expenditures are more than real GDP, so GDP will fall
c. Aggregate expenditures are more than real GDP, so GDP will rise
d. Aggregate expenditures will be equal to GDP, so there will be no change in GDP
Suppose that the level of GDP increased by $300 billion in a private closed economy where the marginal propensity to consume is 0.9. Aggregate expenditures must have increased by
Chapter 11 Solutions
Macroeconomics
Ch. 11.2 - Prob. 1QQCh. 11.2 - Prob. 2QQCh. 11.2 - Prob. 3QQCh. 11.2 - Prob. 4QQCh. 11.7 - Prob. 1QQCh. 11.7 - Prob. 2QQCh. 11.7 - Prob. 3QQCh. 11.7 - Prob. 4QQCh. 11 - Prob. 1DQCh. 11 - Prob. 2DQ
Ch. 11 - Prob. 3DQCh. 11 - Prob. 4DQCh. 11 - Prob. 5DQCh. 11 - Prob. 6DQCh. 11 - Prob. 7DQCh. 11 - Prob. 8DQCh. 11 - Prob. 1RQCh. 11 - Prob. 2RQCh. 11 - Prob. 3RQCh. 11 - Prob. 4RQCh. 11 - Prob. 5RQCh. 11 - Prob. 6RQCh. 11 - Prob. 7RQCh. 11 - Prob. 8RQCh. 11 - Prob. 9RQCh. 11 - Prob. 1PCh. 11 - Prob. 2PCh. 11 - Prob. 3PCh. 11 - Prob. 4PCh. 11 - Prob. 5PCh. 11 - Prob. 6PCh. 11 - Prob. 7PCh. 11 - Prob. 8PCh. 11 - Prob. 9PCh. 11 - Prob. 10P
Knowledge Booster
Similar questions
- Economists often argue that a large increase in government purchases – such as for the military – will crowd out private-sector spending. Use the investment-saving diagram to defend or to refute their premise.arrow_forwardThe simple aggregate expenditures model discussed in this chapter concluded The simple aggregate expenditures model discussed in this chapter concluded that one form of spending was just as good as any other; increases in all types of spending lead to equal increases in income. Is there any reason to suspect that private investment might be better for the economy than government spending? The simple aggregate expenditures model discussed in this chapter concludedarrow_forwardAssuming the level of investment is $16 billion and independent of the level of total output, complete the accompanying table and determine the equilibrium levels of output and employment in this private closed economy. What are the sizes of the MPC and MPS?arrow_forward
- In the economy of Keynesian Island, autonomous consumption expenditure is $50 million, and the marginal propensity to consume is 0.8. Investment is $160 million, government expenditure is $190 million, and net taxes are $250 million. Investment, government purchases, and taxes are constant—they do not vary with income. The island does not trade with the rest of the world. If the government increases its purchases by $200 million, what will be the change in the economy's equilibrium real GDP? Show the change on the graph as well.arrow_forwardSuppose that autonomous consumption (a) is 300, private investment spending(I) is 420, government spending (G) is 400 , Net taxes (T) are 400 and marginal propensity to consume (b) is 80 %, and marginal tax rate (t) is 25 % . By using the above information Find the equilibrium value of national incomeand show it on a graph.arrow_forwardSuppose that out of the original 100 of government spending, 33 will be recycled back into purchases of domestically produced goods and services in the second round and 10.89 is spent in the third round. Following this multiplier effect, what will the value of the total aggregate expenditures be after the fourth round in the cycle is completed?arrow_forward
- Explain graphically the determination of equilibrium GDP for a private economy through the aggregate expenditures model. Assume the MPC is .75. Now add government purchases (any amount you choose) to your graph, showing its impact on equilibrium GDP. Finally, add taxation (any amount of lump-sum tax that you choose) to your graph and show its effect on equilibrium GDP. Looking at your graph, determine whether equilibrium GDP has increased, decreased, or stayed the same given the sizes of the government purchases and taxes that you selected. Specify the level of GDP initially, the amount of Government Purchases, the amount of Taxes, and the ending amount of GDP if different from the original.arrow_forwardThank you so much for helping! 1.2. In the table below is data for a hypothetical private-closed economy (The table normally goes here) Recall, private means that there is no government and closed means that there is no foreign trade. Use the information in the Table 1 to analyze aggregate expenditures (AE) model below (Figure 1. Equilibrium in a Private Closed Economy). Figure 1. Equilibrium in a Private Closed Economy (The line graph normally goes here) 1.3. Identify the mistake and explain why the graph of the aggregate expenditures line does not correctly illustrate the economy's equilibrium. 1.4. Chart the aggregate expenditures (AE) model using the data from Table 1: A Private Closed Economy. Hints: Remember, the 45degree line (also known as the Keynesian Cross) is a tool that shows how differences in aggregate expenditures and real GDP can affect business inventories which will affect future levels of real GDP. Aggregate expenditure and GDP are both function of…arrow_forwardConsider the income-expenditure identity in the closed economy of Macroland, Y = C + I + G. Suppose consumption is always a fraction MPC of income, C = MPCX Y a. Show that income Y is equal to (I + G) / (1 - MPC). b. Suppose that the citizens of Macroland spend 80% of their income and save 20%. Suppose that in equilibrium, government expenditures in Macroland are $50 billion, and investment is $60 billion. Calculate the level of income/expenditure in Macroland. c. Suppose that the Department of Macrolandian Economic Expansion wants to increase income/expenditure by $100 billion. By how much should it increase government expenditures to achieve this? d. Is the amount you answered for part c. less than, equal, to, or greater than $100 billion? Explain why this is the case.arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
