Economics: Principles & Policy
14th Edition
ISBN: 9781337912679
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning US
expand_more
expand_more
format_list_bulleted
Question
Chapter 24, Problem 8DQ
To determine
The reason for inaccurate estimate of marginal propensity to consume.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
a) About Country A, what is your estimate of the country's marginal propensity to consume
(MPC) based on the following information on its GDP (Y) and the components thereof
(in billion dollars) for two past years? Show calculation.
Year 1
Year 2
c)
GDP
C
I
11200
8000
2200
12000 8500 2400
G
800
880
The next few parts are about Country B, whose government plans to cut taxes by $24 billion
as a measure to fight the current recession. The marginal propensity to consume (MPC) in
Country B is known to be 34. There will be no crowding-out effect.
e)
NX
200
220
b) What is the initial effect (in billion dollars) of the tax cut on Country B's aggregate
demand? (The "initial effect" here refers to the effect on AD after only the first round of
increased spending.)
What is the total effect of the tax cut on aggregate demand? Explain why it is different
from the initial effect.
d) How does the total effect of this $24 billion tax cut compare to the total effect of a $24
billion increase in…
Use the figure to calculate the marginal propensity to consume (MPC) between point A and point
B.
MPC =
(Enter your response as a real number rounded to two decimal places.)
C
Real consumption spending ($ billions)
Consumption and National Income
$3,750
$2,250
B
$3,000 $5,000
Real national income or real GDP ($ billions)
C
Consider 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
(a) What is the level of C when Y = $19,000?
I need help to know how to calculate this.
Chapter 24 Solutions
Economics: Principles & Policy
Knowledge Booster
Similar questions
- Given the information below, answer the questions that follow. C = $40 + 0.8Y I = $30 G = $40 X – M = -$10 a) What is the equilibrium GDP? Explain why $550 is not the equilibrium. b) What is the marginal propensity to consume (MPC) in this question? (Explain) c) What is the multiplier in this question and explain the significance of the multiplier? (Show all work) d) Assuming that the full employment level of output is $600, what kind of gap exists and how large is it? Explain e) If transfer payments increased by $10 and the price level did not change, what would the new equilibrium be? (Show all work) f) How would your answer to part (e) change if the price level did change?arrow_forwardYou are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $500 billion, (2) investment = $50 billion, (3) government purchases = $100 billion, and (4) exports = $20 billion, imports = $40 billion. If the full-employment level of GDP for this economy is $700 billion. Marginal Propensity to Consume (MPC) of the economy is 0.5. How much government purchases would be closing the GDP-gap here? Explain your answer, and show your calculation.arrow_forwardQ1: Refer to the information provided in the Table below, answer the questions that follow: Aggregate Income ($billion) Aggregate Saving -100 150 -85 300 -70 450 -55 600 -40 a. What is the society's Marginal propensity to consume (MPC)? b. If MPC is constant, at income level of $900 billion, what would be the aggregate consumption level? c. What is the simple multiplier for this economy?arrow_forward
- Economics 1. Graphing the consumption function from the MPC Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.75. That is, if disposable income increases by $1, consumption increases by 75c. Suppose further that last year disposable income in the economy was $500 billion and consumption was $400 billion. On the following graph, use the blue line (aircle symbol) to plot this economy's consumption function based on these data. (?) 700 600 300 -100 400 500 600 700 100 200 300 DISPOSABLE INCOME (Blions of dotans) From the preceding data, you know that the level of savings in the economy last vear was s billion and the marginal propensity to save in this economy is Suppose that this year, disposable income is projected to be $700 billion. Based on your analysis, you would expect consumption to be S billion and savings to be S billion, CONSUMPTION (Bilions of dolars)arrow_forwardEconomics 1. Graphing the consumption function from the MPC Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.75. That is, if disposable income increases by $1, consumption increases by 75c. Suppose further that last year disposable income in the economy was $500 billion and consumption was $400 billion. On the following graph, use the blue line (aircle symbol) to plot this economy's consumption function based on these data. 700 600 300 -100 300 400 500 600 700 100 200 DISPOSABLE INCOME (Blions of dotani) From the preceding data, you know that the level of savings in the economy last vear was s billion and the marginal propensity to save in this economy is Suppose that this year, disposable income is projected to be $700 billion. Based on your analysis, you would expect consumption to be S billion and savings to be s billion, CONSUMPTION (Blions of dolars)arrow_forward5 Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.50. That is, if disposable income increases by $1, consumption increases by 50¢. Suppose further that last year disposable income in the economy was $300 billion and consumption was $200 billion. On the following graph, use the blue line (circle symbol) to plot this economy's consumption function based on these data. CONSUMPTION (Bens of dolar) 700 600 500 400 300 100 0 100 200 400 600 500 DISPOSABLE INCOME (Billions of dollars) 300 700 000 101 From the preceding data, you know that the level of savings in the economy last year was economy is billion and the marginal propensity to save in this Suppose that this year, disposable income is projected to be $400 billion. Based on your analysis, you would expect consumption to be s billion and savings to be billion.arrow_forward
- The economy is in equilibrium such that Planned Aggregate Expenditure (AE) = Aggregate Output (Y) = 1,200. We have earlier observed that when Y increased from 900 to 1,200 Aggregate Consumption (C) increased from 800 to 1000. If investments increase by 55, how much will Aggregate Income change from its current value of 1,200? 110 82.5 165 1,365 1,310arrow_forwardThe 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). (show your calculations, write the answers to 2 decimal places) Y C S MPC MPS APC APS S = MPC = MPS = APC = APS = 300 360 410 400 600 510 800 250 1050 0.32arrow_forwardThe following table shows consumption (C), investment spending (I), and government purchases (G), for some hypothetical economy at several levels of income (reported in billions of dollars of real GDP). Assume that in this economy, income is taxed at a rate of 25%, base consumption is $50 billion, and that the marginal propensity to consume (MPC) is 0.667, or 2/3. Further assume that this economy is closed, that is, there is no international trade and so net exports are always equal to zero. Use the given information to fill in disposable income, consumption, and planned expenditures in the following table. Income: Real GDP Disposable (After Tax) Income C Ip G Planned Expenditures (Billions of dollars) (Billions of dollars) (Billions of dollars) (Billions of dollars) (Billions of dollars) (Billions of dollars) 0 0 50 100 50 100 100 50 200 100 50 300 100 50 400 100 50 500 100 50…arrow_forward
- Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.50. That is, if disposable income increases by $1, consumption increases by 50c. Suppose further that last year disposable income in the economy was $400 billion and consumption was $350 billion. On the following graph, use the blue line (arcle symbol) to pict this economy's consumption function based on these data. CONSUMPTION (Bions of dollars) ) 700 600 500 400 300 200 100 0 -100 9 100 200 300 400 500 000 DISPOSABLE INCOME (Billions of dollars) 700 000 From the preceding data, you know that the level of savings in the economy last year was 3 economy is billion and the marginal propensity to save in this Suppose that this year, disposable income is projected to be $600 billion. Based on your analysis, you would expect consumption to be 3 billion and savings to be S billion,arrow_forwardCONSUMPTION (Billions of dollars) ng.cengage.com Lesson 6 Discussion Forum ART-1035-U01 - Introduction to Art Mind Tap - Cengage Learning CENGAGE MINDTAP Q Search this course Aplia Homework: Aggregate Expenditure and Aggregate Demand Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.50. That is, if disposable income increases by $1, consumption increases by 50¢. Suppose further that last year disposable income in the economy was $350 billion and consumption was $300 billion. Z-V On the following graph, use the blue line (circle symbol) to plot this economy's consumption function based on these data. E 009 oSuog DISPOSABLE INCOME (Billions of dollars) billion and the marginalbropensity to save in this From the preceding data, you know that the level of saving in the economy last year was economy is M-cBook Al IN F8 F12 F11 F6 888 dele %23 24 8. 6. 9. 7. 3. 4. P. R. H.arrow_forwardDisposable Consumption income expenditure (€, thousands) (€, thousands) 200 220 300 300 400 380 500 460 According to the data in the above table, calculate the marginal propensity to consume (MPC). Give only a numerical answer. Where needed, use only a point (.) for decimals (e.g., 3.25, not 3,25) and no thousands separator (e.g., 2000, not 2,000).arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you