Economics For Today
10th Edition
ISBN: 9781337613040
Author: Tucker
Publisher: Cengage Learning
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Question
Chapter 19, Problem 17SQ
To determine
The required government spending to increase the real
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Assume that the short run equilibrium GDP is $4,000 billion and the potential GDP is $5,000 billion. The marginal propensity to consume is 0.8.
[a] Would you classify this society more inclined to consume or save? Explain .
[b] By how much would you advise the President to adjust the government spending and the taxes? Show your work.
The tax rate is 0.4. The marginal propensity to import is 0.5 .
When real GDP increases from $20,000 to $20,198, consumption increases from $18,000 to $18,050. What is the marginal propensity to consume?
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*?
Chapter 19 Solutions
Economics For Today
Ch. 19.4 - Prob. 1YTECh. 19 - Prob. 1SQPCh. 19 - Prob. 2SQPCh. 19 - Prob. 3SQPCh. 19 - Prob. 4SQPCh. 19 - Prob. 5SQPCh. 19 - Prob. 6SQPCh. 19 - Prob. 7SQPCh. 19 - Prob. 8SQPCh. 19 - Prob. 9SQP
Ch. 19 - Prob. 10SQPCh. 19 - Prob. 1SQCh. 19 - Prob. 2SQCh. 19 - Prob. 3SQCh. 19 - Prob. 4SQCh. 19 - Prob. 5SQCh. 19 - Prob. 6SQCh. 19 - Prob. 7SQCh. 19 - Prob. 8SQCh. 19 - Prob. 9SQCh. 19 - Prob. 10SQCh. 19 - Prob. 11SQCh. 19 - Prob. 12SQCh. 19 - Prob. 13SQCh. 19 - Prob. 14SQCh. 19 - Prob. 15SQCh. 19 - Prob. 16SQCh. 19 - Prob. 17SQCh. 19 - Prob. 18SQCh. 19 - Prob. 19SQCh. 19 - Prob. 20SQ
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- The level of AD needed to achieve full employment is $150 billion. The current level of Real GDP (output) is $100 billion. A $5 billion increase in government spending closes the gap and restores FullEmployment. What is the Marginal Propensity to Consume?arrow_forwardConsider an economy in which autonomous consumption, planned autonomous investment, autonomous government expenditure, autonomous taxes, and the marginal propensity to consume are given (there are no net exports). Autonomous consumer spending = $3,000 Ip = $5,000 G = $3,000 T = $4,000 MPC = .75 Is the government budget balanced?arrow_forwardQ-1 The following table shows income and consumption: Calculate: A- Saving (S), B- Marginal propensity to consume (MPC), C-Marginal propensity to save (MPS), D- Average propensity to consume (APC) E- Average propensity to save (APS). Q-2 Compute the (a) Number of unemployed, (b) Unemployment-rate, (c) Population, and (d) Labor force participation rate, using this data: Number of employed = 1800 million Not in labour force =730 million Number of Labour force =2500 million Q-3 Discuss how to control or reduce the Inflation and Unemployment.arrow_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. a) Plot the aggregate consumption function and planned aggregate spending. b) What is unplanned inventory investment when real GDP equal $600 billion? 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_forwardA high marginal propensity to save means ? (a) lower multiplier (b). Higher is the investment spending (c). Higher is the equilibrium income (d). A higher level of aggregate demand (e). A high level of exportsarrow_forwardAssume that the marginal propensity to consume is 0.6 and potential output is $1000 billion. If real GDP is $1100 billion: Select one: a. there is an inflationary gap. b. the economy is in long-run equilibrium. c. there is a recessionary gap. d. government transfers should be decreased.arrow_forward
- f the marginal propensity to consume is 0.75 and the federal government decreases spending by $200 billion the income-expenditure model predicts that real GDP will fall by: $750 billion $150 billion $1000 billion $800 billionarrow_forwardThe marginal propensity to save is 0.2. Equilibrium GDP will decrease by $50 billion if the aggregate expenditures schedule decreases by Multiple Choice $10 billion. $250 billion. $25 billion. $5 billion.arrow_forwardConsider an economy described by the following equations: Y = C + I + G C = 100 + 0.8 (Y - T); I = 300 – 30r; G = 125; T = 100 Where Y is GDP, C is consumption, I is investment, G is government purchases, T is taxes, and r is the interest rate. If the economy were at the full employment (that is, at its natural rate), GDP would be 2,200. What is the marginal propensity to consume? What is the marginal propensity to save? a. 0.8; 0.2 b. 0.75; 0.25 c. None of the other answers is correct. d. 0.75; 0.5arrow_forward
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