EP ECONOMICS,AP EDITION-CONNECT ACCESS
20th Edition
ISBN: 9780021403455
Author: McConnell
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 24, Problem 4RQ
To determine
The economy’s real GDP.
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LAST WORD What is Say's law? How does it relate to the view held by classical economists that the economy generally will operate at a position on its production possibilities curve? Use production possibilities analysis to demonstrate Keynes's view on this matter.
d. A decrease in aggregate demand.
e. An increase in aggregate demand that
exceeds an increase in aggrega
supply.
4. Suppose that the table below shows an economy's relationship between real output and the inputs
needed to produce that output: LO4
Input
Quantity
Real
GDP
150.0
$400,
112.5
300
75.0
200
a. What is productivity in this economy?
b. What is the per-unit cost of production if the price of each input unit is $2?
c. Assume that the input price increases from $2 to $3 with no accompanying change in productivity.
What is the new per-unit cost of production? In what direction would the $1 increase in input price push
the economy's aggregate supply curve? What effect would this shift of aggregate supply have on the price
level and the level of real output?
d. Suppose that the increase in input price does not occur but, instead, that productivity increases by 100
percent. What would be the new per-unit cost of production? What effect would this change in per-unit
production cost have on the economy's aggregate supply curve? What effect would this shift of aggregate
supply have on the price…
Chapter 24 Solutions
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- 4. Below is a list of domestic output and national income figures for a certain year. All figures are in billions. The questions that follow ask you to determine the major national income measures by both the expenditures and income approaches. The results you obtain with the different methods should be the same. LO7.4 Personal consumption expenditures $245 7. Net foreign factor income 4 Transfer payments 12 Rents 14 Consumption of fixed capital (depreciation) 27 Statistical discrepancy 8. Social Security contributions 20 Interest 13 Proprietors' income 33 Net exports 11 Dividends 16 Compensation of employees 223 Taxes on production and imports 18 Undistributed corporate profits 21 Personal taxes 26 19 Corporate income taxes 56 Corporate profits 72 Government purchases 33 Net private domestic investment 20 Personal saving a. Using the above data, determine GDP by both the expenditures approach and the income approach. Then determine NDP. b. Now determine NI in two ways: first, by…arrow_forwardSuppose consumption function is specified as C= $200 + 0.75Ya planned investment is $600, net taxes are $400, and government spending totals $500 of a hypothetical economy in 2020. Find algebraically: LO 3 A. The equilibrium level of aggregate output by equating aggregate output and planned aggregate expenditure. B. Consumption when aggregate output is at the equilibrium level. C. Saving when aggregate output is at the equilibrium level. D. Establish that leakages equal injections at the equilibrium level of aggregate output.arrow_forwardConsider the data shown in the table. Assume that the economy produces only textbooks. What is the growth rate of real GDP between the two years using last year as the base year? |Textbooks Actual Price Sold Last year This year 5,000 $50 5,250 $55 10% 5% O 2.5% 15%arrow_forward
- 5. Refer to the data in the table that accompanies problem 2. Suppose that the present equilibrium price level and level of real GDP are 100 and $225, and that data set B represents the relevant aggregate supply schedule for the economy. LO12.6 a. What must be the current amount of real output demanded at the 100 price level? b. If the amount of output demanded declined by $25 at the 100 price level shown in B, what would be the new equilibrium real GDP? In business суcle economists call this change in real terminology, what would GDP?arrow_forward9:22 1 LTE Aggregate D&S assignment chap 12.... Assignment Chapter 12 1. Suppose that the aggregate demand and aggregate supply schedules for a hypothetical economy are as shown below: LO5 Amount of Amount of Real GDP Real GDP Demanded, Billions Price Level Supplied, Billions (Price Index) $100 300 $450 200 250 400 300 200 300 400 150 200 500 100 100 a. Use these sets of data to graph the aggregate demand and aggregate supply curves. What is the equilibrium price level and the equilibrium level of real output in this hypothetical economy? Is the equilibrium real output also necessarily the full-employment real output? b. If the price level in this economy is 150, will quantity demanded equal, exceed, or fall short of quantity supplied? By what amount? If the price level is 250, will quantity demanded equal, exceed, or fall short of quantity supplied? By what amount? c. Suppose that buyers desire to purchase $200 billion of extra real output at each price level. Sketch in the new…arrow_forwardSuppose aggregate demand in the economy sharply decines. Keynesian economists say that the price level (at least for a time) will and real output wil O remain constant; decrease Increase; remain constant remain constant; increase decrease; remain constant lo000arrow_forward
- 2. L Give Up! Suppose the Japanese economy has been experiencing slow growth. As a result, the Prime Minister, who thinks John Maynard Keynes was the greatest economist ever, has decided to increase government spending. The Prime Minister asks the head of the economic council to determine the increase in government spending necessary to bring the economy to full employment. Assume there is a GDP gap of 1 trillion yen and the marginal propensity to consume (MPC) is 0.60. What advice should the head of the economic council give the Prime Minister? O The recessionary gap is equal to 400 billion yen. O The inflationary gap is equal to 400 billion yen. O The recessionary gap is equal to 625 billion yen. O The inflationary gap is equal to 625 billion yen.arrow_forwardSuppose that the table presented below shows an economy's relationship between real output and the inputs needed to produce that output: Input Quantity Real GDP 150.0 $ 400 112.5 300 75.0 200 Instructions: Enter your responses answers rounded to 2 decimal places. a. What is the level of productivity in this economy? b. What is the per-unit cost of production if the price of each input unit is $2? $ C. Assume that the input price increases from $2 to $3 with no accompanying change in productivity. What is the new per-unit cost of production? In what direction would the $1 increase in input price push the economy's aggregate supply curve? (Click to select) v What effect would this shift of aggregate supply have on the price level and the level of real output? O The price level would decrease and real output would increase. O Both the price level and real output would remain the same. O The price level would decrease and real output would remain the same. O The price level would increase…arrow_forwardcome is included 13. LAST WORD Assume that you borrow $5,000, and you pay back the $5,000 plus $250 in interest at the end of the year. Assuming no inflation, what is the real interest rate? What would the interest rate be if the $250 of interest had been dis- counted at the time the loan was made? What would the inter- est rate be if you were required to repay the loan in 12 equal monthly installments?arrow_forward
- Manipulate the graph to show what will happen to supply and demand in the market for loanable funds when the government budget deficit increases, changing the equilibrium quantity of loanable funds by 3 percentage points. Ceteris paribus, what is the new interest rate? interest rate: Ceteris paribus, private investment would increase. not change. decrease. % 20 10 9 Supply 8 Interest rate (%) 7 CO 5 LO 3 2 1 0 0 2 Demand 4 6 8 10 12 14 16 18 20 22 24 26 28 Quantity of loanable funds (% of GDP)arrow_forwardDiscuss the following statements: a. The Keynesian multiplier is higher the higher is the degree of openness of the economy'. b. 'There is no easy policy answer when it comes to dealing with a negative supply shock'. Consider the following economy. The production function is F(K,L) = K0.3 Lº.7. The saving rate and the depreciation rate are respectively: s = 0.10 and 8 = 0.07. Population growth is 1%, i.e. n = 0.01. c. Derive the capital accumulation equation for this economy. d. Find the steady state value of the capital stock per capita. e. Suppose that the initial capital stock per capita is: k = 1.5. Discuss the process of convergence of the economy to the steady state using the appropriate diagram. f. Calculate the optimal saving rate of the economy and discuss whether the economy at the steady state over or under-accumulates capital.arrow_forwardRefer to the table. Equilibrium GDP is: Government Purchases Consumption (after taxes) $-20 Gross Investment Net Exports Real GDP $15 $10 10 $+5 $0 0. +5 15 10 20 10 +5 15 40 40 10 +5 15 70 60 10 +5 15 100 80 10 +5 15 130 100 10 +5 15 160 $40. O $70. O $100. O $130. $160 O O O O Oarrow_forward
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