EP ECONOMICS,AP EDITION-CONNECT ACCESS
20th Edition
ISBN: 9780021403455
Author: McConnell
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 29, Problem 3DQ
To determine
Saving equal to planned investment at equilibrium GDP in the private closed economy.
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Suppose 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.
4. Other things equal, what effect will each
of the following changes independently
have on the equilibrium level of real
GDP in a private closed economy?
LO11.5
a. A decline in the real interest rate.
b. An overall decrease in the expected
rate of return on investment.
c. A sizable, sustained increase in stock
prices.
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.
Chapter 29 Solutions
EP ECONOMICS,AP EDITION-CONNECT ACCESS
Ch. 29.2 - Prob. 1QQCh. 29.2 - Prob. 2QQCh. 29.2 - Prob. 3QQCh. 29.2 - Prob. 4QQCh. 29.7 - Prob. 1QQCh. 29.7 - Prob. 2QQCh. 29.7 - Prob. 3QQCh. 29.7 - Prob. 4QQCh. 29 - Prob. 1DQCh. 29 - Prob. 2DQ
Ch. 29 - Prob. 3DQCh. 29 - Prob. 4DQCh. 29 - Prob. 5DQCh. 29 - Prob. 6DQCh. 29 - Prob. 7DQCh. 29 - Prob. 8DQCh. 29 - Prob. 1RQCh. 29 - Prob. 2RQCh. 29 - Prob. 3RQCh. 29 - Prob. 4RQCh. 29 - Prob. 5RQCh. 29 - Prob. 6RQCh. 29 - Prob. 7RQCh. 29 - Prob. 8RQCh. 29 - Prob. 9RQCh. 29 - Prob. 1PCh. 29 - Prob. 2PCh. 29 - Prob. 3PCh. 29 - Prob. 4PCh. 29 - Prob. 5PCh. 29 - Prob. 6PCh. 29 - Prob. 7PCh. 29 - Prob. 8PCh. 29 - Prob. 9PCh. 29 - Prob. 10P
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- Intended Spending (billions) $2,300 $2,100 $1,900 $1,700 $1,500 The marginal propensity to consume is 01 O 19/21. O 2/3. O 5/7. 45% $1,500 $1,800 $2,100 $2,400 $2,700 Gross Domestic Product (billions) impossible to tell from the graph. Consumption plus investment Consumptionarrow_forwardLAST 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.arrow_forwardCF 1 2 3 4. 5 Disposable income (trillions of 2005 dollars) In the above figure, at a disposable income level of $2 trillion, saving equals Select one: O a. $4 trillion. O b. zero. O c. consumption expenditures. O d. disposable income. 6. 3 DT Processing of...pdf 2 Introduction to..pdf odf here to search Consumption expenditure (trillions of 2005 dollars) 5, IIarrow_forward
- ADVANCED ANALYSIS Assume that the consumption schedule for a private closed economy is such that consumption is: C = 100 + 0.75Y Assume further that planned investment Ig is independent of the level of real GDP and constant at Ig = 50. Recall also that, in equilibrium, the real output produced (Y) is equal to aggregate expenditures: Y = C + Ig Instructions: Enter your answers as whole numbers.a. Calculate the equilibrium level of income or real GDP for this economy. Equilibrium GDP (Y) = $ . b. What happens to equilibrium GDP if Ig changes to 60? Equilibrium GDP (Y) = $ . What does this outcome reveal about the size of the spending multiplier? Spending multiplier = .arrow_forwardIf real GDP is $2200 billion, the GDP deflator is 110, nominal net exports are $100 billion, nominal investment is $200 billion, and nominal government expenditures are $400 billion, what is nominal consumption? 1) $1300 2) $1500 3) $1520 O 4) $1720arrow_forward4. 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_forward
- 100 gaia 270 200 130 60 450 100 200 300 Aggregate income (Y) Figure 8.3 ?Refer to Figure 8.3. Which of the following statements is true „Aggregate saving is negative for all income levels below $400 a O For all aggregate income levels above $200, aggregate consumption is greater than aggregate income b O If consumption is the only expenditure, this economy would be in equilibrium at an aggregate income level of c O $300 Saving is negative at all income levels below $200 d O Aggregate consumption (C)arrow_forwardUse the consumption function shown to answer the following questions. 110- At what level of income is consumption equal to disposable income? $ billion. 100 C = Y. Which of the following statements is true? O A. Consumption is $30 billion when the income level is $100 billion. O B. Saving equals consumption at an income level of $40 billion OC. At an income level of $0 billion there is dissaving equal to $20 billion. D. At an income of $100 billion there is dissaving of $30 billion. 90 80- 70 60- 50- 40 30- 20 10- 10 20 30 40 s0 60 70 Bo 90 100 110 Real Disposable Income ($ billions) Planned Real Consumptionarrow_forwardAssume a closed economy, that taxes are fixed, and the marginal propensity to consume is equal to 0.66. What is the government spending multiplier? O 1.51 3.33 3.03 33.3arrow_forward
- /se estion 5 Suppose you were looking at an economy where the consumption function is; C = 50 +0.75Y And you know that investors want to spend 500 at every level of income. In other words 1-500 a. What is the equilibrium level of income? b. If the full - employment level of income is 2000, is there a recessionary gap? If so, how large is the gap? c. What will happen to the equilibrium level of income if investors become pessimistic about the country's future and reduce their investment to 400? d. Is there an inflationary or recessionary gap now? How large? marks) Format Tools Table TV- BIU AV V T²v / povarrow_forwardGDP $0 1 2 Consumption $0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 D 8 4.5 As shown in Exhibit 9-1, if equilibrium GDP is $5 trillion, then the total of investment, government spending, and net exports is: 8 4.5 As shown in Exhibit 9-1, if equilibrium GDP is $5 trillion, then the total of investme O $1 trillion. $2 trillion. O $3 trillion. O $4 trillion. $6 trillion. 4 Aggregate Expenditures 6 Unplanned inventoryarrow_forwardSuppose disposable income increases from $7 trillion to $8 trillion. At the same time, consumption expenditure increases from $6.8 trillion to MPC must equal Thus the O $7.8 trillion; 0.60 O $7.6 trillion; 0.80 O $7.4 trillion; 0.40 O $8 trillion; 1.00arrow_forward
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