EBK ECONOMICS: PRINCIPLES AND POLICY
13th Edition
ISBN: 9780100605930
Author: Blinder
Publisher: YUZU
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Chapter 25, Problem 8DQ
To determine
The reason for inaccurate estimate of marginal propensity to consume.
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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
Please answer ASAP
Chapter 25 Solutions
EBK ECONOMICS: PRINCIPLES AND POLICY
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