Macroeconomics
21st Edition
ISBN: 9781259915673
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 11, Problem 5RQ
To determine
Multiplier.
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Y C I G X
$ 100 $ 120 $ 20 $ 30 $ 10
$ 300 $ 300 $ 20 $ 30 - $ 10
$ 500 $ 480 $ 20 $ 30 - $ 30
$ 700 $ 660 $ 20 $ 30 - $ 50
a.What is the multiplier?
b.What is the equilibrium level of the real GDP?
c.What is the value of autonomous consumption?
Income and Expenditure — End of Chapter Problem
An economy has a marginal propensity to consume of 0.5, and Y*, the income-expenditure equilibrium GDP, equals $500 billion. Given an autonomous increase in planned investment of $10 billion, answer the following questions.
a. What is the value of the multiplier?
Value of the multiplier =
b. What would you expect the total change in Y* to be based on the multiplier formula?
Change in Y* based on the multiplier =
billion
c. What is the total change in real GDP after the 10 rounds?
It may be beneficial to make a table on a separate sheet of paper to calculate the change in real GDP for each of the rounds, and then add up the values.
Total change in real GDP (10 rounds) =
billion
d. How do your answers to the change in GDP and Y compare?
The answer to total change in GDP after 10 rounds and the change in Y* based on the multiplier formula are
Table 2 shows elements in the national income accounts of an economy. Assume the economy is currently in equilibrium.
elements billions
Consumption (total) 80
Investment 9
Government Expenditure. 6
Imports 15
Exports 8
C) If national income now rises by £22 billion and as a result, the consumption of domestically produced goods rises to £80 billion. Calculate the marginal propensity to consume (MPC).
D) What is the value of the multiplier?
E) Comment on the results in part (c) and (d).
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
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Similar questions
- Is the mpc in the multiplier .75? only because multiplier is 1/(1-mpc) which would make sense for .25 1-.75=.25 however what is mps?arrow_forwardIn order for the economy (GDP) to be grow and take advantage of the multiplier effect, which one of these should be done? a. Increase agricultural production b. Increase taxes c. Increase the number of banks nationwide d. increase the manufacturing sector e. Increase government spending f. all of the choicesarrow_forward4. Assume a closed economy in which disposable income starts at 1,000 and increases by 500; consumption starts at 1,100 and increases by 300; investment spending is 1,000 and government spending is 500. The MPC is 0.6, The multiplier is 2.5, and The consumption equation is C = 500 + 0.6DI Equilibrium GDP is? A 3,500 B 3,000 C 4,000 D 5,000arrow_forward
- Calculate the Marginal Propensity to Consume and the Marginal Propensity to Save. Fill in the blanks in the following table. Show that the MPC plus the MPS equals 1. National Income & Real GDP (Y) Consumption (C) Saving (S) MPC MPS $9,000 $8,000 $10,000 $8,600 $11,000 $9,200 $12,000 $9,800 $13,000 $10,400arrow_forward1. If an increase in investment spending of $20 million results in a $200million increase in equilibrium real GDP, thenA. the multiplier is 10.B. the multiplier is .1.C. the multiplier is 100.D. the multiplier is 1.arrow_forwardWhat is the multiplier effect in economics? A. The tendency of consumers to save rather than spend B. The tendency of firms to reduce production during a recession C. The amplification of changes in spending through the economy D. The reduction of government spending to control inflationarrow_forward
- In an economy with no government and no foreign sectors, autonomous consumer spending is $250 billion, planned investment spending is $350 billion, and the marginal propensity to consume is 2/3. c) What is Y*, income-expenditure equilibrium GDP? d) What is the value of the multiplier? e) If planned investment spending rises to $450 billion, what will be the new Y*?arrow_forward1. The marginal propensity to consume is:A) the change in consumption divided by the change in income.B) consumption divided by income.C) the change in consumption divided by the change in saving.D) The change in saving divided by the change in income.arrow_forwardQ1:You are given the following income-expenditures model for an economy : Consumption C = 300 + .64Yd Tax (T) = $60 Government expenditure G = $100 Investment (I) = $120 From above data calculate the follows: 3. At the equilibrium level of income, what is the amount of savings? 4. Marginal Propensity of Saving (MPS)arrow_forward
- An economy has a marginal propensity to consume of 0.5, and Y*, the income-expenditure equilibrium GDP, equals $500 billion. Given an autonomous increase in planned investment of $10 billion, answer the following questions. a. What is the value of the multiplier? Value of the multiplier = b. What would you expect the total change in Y* to be based on the multiplier formula? Change in Y* based on the multiplier = billion c. What is the total change in real GDP after the 10 rounds? It may be beneficial to make a table on a separate sheet of paper to calculate the change in real GDP for each of the rounds, and then add up the values. Total change in real GDP (10 rounds) =arrow_forwardQ) Consider the multiplier model (in which the only component of expenditure that depends on income is consumption), and suppose that investment expenditures decrease by $50 million. All else equal, then the spending-balance level of output will A) increase by $50 million B) decrease by $50 million C) decrease by more than $50 million D) decrease by less than $50 million Explain it early and correctlyarrow_forwardWhen the economy is in a recession, the government will want to increase output. If the multiplier equals 2.5 and the government increases spending by 200, how much will output increase by? A) 900 B) 300 C) 500 D) 100arrow_forward
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