EBK ECONOMICS TODAY
18th Edition
ISBN: 9780100663336
Author: Miller
Publisher: YUZU
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Chapter 13, Problem bFCT
To determine
To show: The reason for which it can be said that transfers to
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With the economy in a recession due to inadequate aggregate demand, the government increased its spending by $1,200. Suppose the central bank takes no action for the time being, and the marginal propensity to consume is 2/3, how large will the increase of aggregate demand approximately?
Suppose economists observe that an increase in government spending of $10 billion raises the total demand for goods and services by $30 billion.
If these economists ignore the possibility of crowding out, what would they estimate the marginal propensity to consume (MPC) to be?
Examine the following policies and determine which would decrease the level of aggregate demand.
Decreasing in government spending and decreasing taxes
Increasing investment and increasing government spending
Increasing consumption and decreasing taxes
Decreasing in government spending and increasing in taxes
Chapter 13 Solutions
EBK ECONOMICS TODAY
Ch. 13.D - Prob. 1PCh. 13.D - Prob. 2PCh. 13.D - Prob. 3PCh. 13 - Prob. 13.1LOCh. 13 - Prob. 13.2LOCh. 13 - Prob. 13.3LOCh. 13 - Prob. 13.4LOCh. 13 - Prob. aFCTCh. 13 - Prob. bFCTCh. 13 - Prob. 1CTQ
Ch. 13 - Prob. 2CTQCh. 13 - Prob. 1FCTCh. 13 - Prob. 2FCTCh. 13 - Prob. 1PCh. 13 - Prob. 2PCh. 13 - Prob. 3PCh. 13 - Prob. 4PCh. 13 - Prob. 5PCh. 13 - Prob. 6PCh. 13 - Prob. 7PCh. 13 - Prob. 8PCh. 13 - Prob. 9PCh. 13 - Prob. 10PCh. 13 - Prob. 11PCh. 13 - Prob. 12PCh. 13 - Prob. 13PCh. 13 - Prob. 14PCh. 13 - Prob. 15PCh. 13 - Prob. 16P
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- Suppose 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_forwardThe principle of the multiplier states that: any increase in aggregate spending that causes the aggregate demand curve to shift will result in a larger increase in national income. in the long run, the aggregate demand curve becomes relatively flat as the economy approaches full employment. any increase in national income will result in a larger increase in aggregate spending. for any given increase in income, there will be a less than proportional increase in consumer spending. None of the above.arrow_forwardThe multiplier effect states that there are additional shifts in aggregate demand from fiscal policy, because it a. reduces investment and thereby increases consumer spending. b. increases the money supply and thereby reduces interest rates. c. increases income and thereby increases consumer spending. d. decreases income and thereby increases consumer spending.arrow_forward
- Due to an increase in consumer wealth, there is a $40 billion autonomous increase in consumer spending in the economies of Westlandia and Eastlandia. Assuming that the aggregate price level is constant, the interest rate is fixed in both countries, and there are no taxes and no foreign trade, complete the accompanying tables to show the various rounds of increased spending that will occur in both economies if the marginal propensity to consume is 0.5 in Westlandia and 0.75 in Eastlandia. What do your results indicate about the relationship between the size of the marginal propensity to consume and the multiplier?arrow_forwardWhat is the eventual effect on real GDP if the government increases its purchases of goods and services by $75,000? Assume the marginal propensity to consume (MPC) is 0.75. $ What is the eventual effect on real GDP if the government, instead of changing its spending, increases transfers by $75,000? Assume the MPC has not changed. $ An increase in government transfers or taxes, as opposed to an increase in government purchases of goods and services, will result in an identical eventual effect on real GDP. no change to real GDP. a larger eventual effect on real GDP. a smaller eventual effect on real GDP.arrow_forwardWill an economy with a high multiplier be more stable or less stable than an economy with a low multiplier in response to changes in the economy or in government policy?arrow_forward
- Suppose the economy has a recessionary gap. By using an expansionary fiscal policy, the Federal Government can close this gap by A.)increasing government spending in order to increase aggregate demand. B.)reducing taxes in order to stimulate investment, and thus increase aggregate supply. C.)increasing government spending and taxes in order to both increase aggregate demand and aggregate supply D.)decreasing government spending in order to increase aggregate supply.arrow_forwardEconomists often refer to the “multiplier effect.” What is the “multiplier effect,” and how is its magnitude related to the size of the marginal propensity to consume?arrow_forwardSuppose economists observe that an increase in government spending of $11 billion raises the total demand for goods and services by $55 billion. If these economists ignore the possibility of crowding out, they would estimate the marginal propensity to consume (MPC) to be . Now suppose the economists allow for crowding out. Their new estimate of the MPC would be than their initial one.arrow_forward
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