MACROECONOMICS W/CONNECT
18th Edition
ISBN: 9781307253092
Author: McConnell
Publisher: Mcgraw-Hill/Create
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Question
Chapter 11, Problem 8RQ
To determine
Inflationary expenditure gap.
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2. Determine the multiplier and the net effect of the following autonomous changes in spending:
a. An influx of $100 billion in government spending when the marginal propensity to consume is 0.75.
b. An influx of $250 billion in business investment when the marginal propensity to consume is 0.5.
C.
An influx of $180 billion in export sales revenue when the marginal propensity to consume is 0.8.
If investment increases by $50 billion, by how much will aggregate demand change?
Aggregate demand will _______.
A.
increase by less than $50 billion because there will be fewer goods and services produced for consumption expenditure
B.
increase by more than $50 billion because the increase in aggregate income induces an increase in consumption expenditure
C.
probably decrease by $50 billion, but it depends on the change in aggregate supply
D.
increase by exactly $50 billion because investment is a component of aggregate demand
Figure 3-3
45°
Planned
Expenditure
200 + 0.75Y
45
Income (Y)
In the figure above:
a. Find the equilibrium GDP. What happens to the left of that equilibrium? What happens to
the right?
b. When income is $1,000, what is the unplanned inventory?
c. What is the GDP multiplier?
d. What is the tax multiplier?
e. How much should government expenditures increase if the government wants to increase
GDP from the equilibrium level found at point a) to 1,000?
f. How much should taxes decrease if the government wants to increase GDP from the
equilibrium level found at point a) to 1,000?
Planned Expenditure
Chapter 11 Solutions
MACROECONOMICS W/CONNECT
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
- 4. Suppose an economy had aggregate demand components with the following relationships: Consumption Spending, C=195+0.80° (DY) Investment Spending, I-25 +0.10°Y Government Spending, G-6+0.15*Y Net Export Spending, X-14-0.05*Y Tax Collections, Tx = -20+0.25*Y a. What is the equilibrium income for this economy (Show your work)? b. At the equilibrium income, what is the size of the government surplus (or deficit)? den Cal Page 3 601 c. If the Government decided to Increase G spending by 15, what would be the new equilibrium income for this economy (Show your work)? d. If instead the Government decided to Reduce Tx (taxes) by 6, what would be the new equilibrium income for this economy (Show your work)? yanoM e. If instead the Government decided to Increase G spending and Increase Tx (taxes) both by 30, what would be the new equilibrium income for this economy (Show your work)?arrow_forwardMultiplier Effect a. During a recessionary gap, is the goal to increase or decrease the equilibrium GDP? Will the change in spending be greater than, less than or equal to the change in the equilibrium GDP? b. c. In a given economy with an MPC of 0.8, the equilibrium GDP equals $630,000. If G increases by $70000, solve for the new equilibrium GDP that will result. In a given economy, with an equilibrium GDP of $280,000 both government purchases and taxes increase by $10,000. Solve for the new equilibrium GDP that will result from these two changes.arrow_forward3. Suppose an economy had aggregate demand components with the following relationships: Consumption Spending, C-140 +0.60*(DY) Investment Spending, I-25 +0.15"Y Government Spending, G-0 Net Export Spending, X=0 Tax Collections, Tx = 0 a. What is the equilibrium income for this economy (Show your work)? b. If the Government decided to Increase G spending by 6, what would be the new equilibrium income for this economy (Show your work)? Page 2 bed tooing c. If instead the Government decided to Reduce Tx (taxes) by 10 (i.e., send checks to people), what would be the new equilibrium income for this economy (Show your work)? d. If instead the Government decided to Increase G spending and Increase Tx (taxes) by 20, what would be the new equilibrium income for this economy (Show your work)?arrow_forward
- Economicsarrow_forwardThe economy's current level of equilibrium GDP is $780 billion. The full-employment level of GDP is $800 billion. The multiplier is 4. Given those facts, we know that the economy faces. expenditure gap of. a recessionary; $10 billion O a recessionary; $5 billion an inflationary: $5 billion a recessionary; $20 billion O an inflationary; $20 billion an inflationary; $10 billionarrow_forward11. How do lower taxes affect aggregate demand? A) They increase disposable income, consumption, and aggregate demand. B) They reduce disposable income, consumption, and aggregate demand. C) They decrease corporate investment and aggregate demand. D) They increase aggregate supply and thus increase aggregate demand as well 12. Full-employment GDP is also known as A) realized GDP. B) potential GDP. C) politico-economic GDP. D) balanced-budget GDP.arrow_forward
- An economy has a fixed price level, no imports, and no income taxes. MPC is 0.9, and real GDP is $200 billion. Businesses increase investment by $10 billion. Calculate the new level of real GDP and explain why real GDP increases by more than $10 billion. *** The new level of real GDP is $100 billion. Real GDP increases by more than $10 billion because the increase in investment OA. enables firms to produce more output B. increases exports C. induces an increase in consumption expenditure D. increases the marginal propensity to consumearrow_forward60. Assume a recessionary gap of $300 B exists in the U.S. macroeconomy. Also assume that the MPC .80. How much do taxes need to change and do the change in taxes represent an increase or a decrease? (Use simple multiplier formula) A. $100 B, increase B. $300 B, increase C. $75 B, decrease D. $62 B, increasearrow_forward5. Explain the effects of the following actions on equilibrium income, assuming that the marginal propensity to consume is 0.8 a. Government purchases rise by $40 billion. b. Taxes fall by $40 billion.arrow_forward
- 4. The country of Merryville has an unemployment rate that is greater than the natural rate of unemployment.The government of Merryville increases spending on goods and services by $200 billion, which is financed by borrowing. If the marginal propensity to consume in Merryville is 0.75:i. Calculate the multiplierii. What is the maximum possible change in real gross domestic product (GDP) that could result from the $200 billion increase in government spending?arrow_forwardEconomics 1. Explain how each of the following changes would shift the aggregate expenditure function and the aggregate demand curve. a) An increase in government expenditures (G).arrow_forwardQUESTION 21 What is the marginal propensity to consume? a. The ratio of the change in consumption to the change in national income O b. The proportion of national income that goes on consumption O c. The additional spending by a consumer when the price of a good falls O d. The additional revenue received by a firm when it attracts a new customerarrow_forward
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