Macroeconomics: Principles and Policy (MindTap Course List)
13th Edition
ISBN: 9781305280601
Author: William J. Baumol, Alan S. Blinder
Publisher: Cengage Learning
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Chapter 9, Problem 2DQ
To determine
To describe: The economical mechanism involved in finding the reasons for some level of real
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Explain the basic idea of the expenditure multiplier and the role consumers' play.
The following are exogenous (not directly affected by income):
G = 9
I = 14
X = M = 0
The consumption function is:
C = k + cY, where k = 8, c = 0.6
What is the equilibrium level of GDP? State to ONE decimal place
What is the multiplier for this economy?
The following are exogenous (not directly affected by income):
G = 11
I = 4
X = M = 0
The consumption function is:
C = k + cY, where k = 3, c = 0.8
What is the equilibrium level of GDP?
What is the multiplier?
Same information as in the previous question:
The following are exogenous (not directly affected by income):
G = 11
I = 4
X = M = 0
The consumption function is:
C = k + cY, where k = 3, c = 0.8
Imagine the maximum potential output or real GDP of this economy is 100. Assume that is the same as saying we reach the edge of the PPF at 100.
Now assume we want to get that economy from the current level of GDP to its maximum potential of 100.
We can do this in two ways - either increase government spending (G) or reduce taxes, (we…
Q1:You are given the following income-expenditures model for an economy :
Consumption C = 300 + .64Yd
Tax (T) = $60
Government expenditure G = $100
Investment (I) = $120
From above data calculate the follows:
1. Equilibrium level of income
2. At the equilibrium level of income, what is the amount of consumption?
Chapter 9 Solutions
Macroeconomics: Principles and Policy (MindTap Course List)
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- Which of the following will increase the slope of the demand curve in the goods market to indicate an increase in the level of output and income? Select one: a. An increase in autonomous investment. b. An increase in the marginal propensity to consume. c. An increase in government spending. d. An increase in taxation.arrow_forwardChapter 14 Explain the basic idea of the expenditure multiplier and the role consumers play.arrow_forwardThe following graph shows three total expenditure lines for an economy at three different price levels. AE130 corresponds to the price level of 130; AE110 corresponds to the price level of 110; AE150 corresponds to the price level of 150. The black line (which starts in the bottom left corner) is a 45-degree line illustrating the set of points for which real GDP and total expenditure are equal. 1. What is the level of equilibrium output at a price level of 110 is what? (First picture) 2. Plot aggregate demand curve in second picturearrow_forward
- In an economy, autonomous consumption expenditure is $50 billion, investment is $200 billion, and government expenditure is $250 billion. The marginal propensity to consume is 0.7 and net taxes are $250 billion. Exports are $500 billion and imports are $450 billion. Assume that net taxes and imports are autonomous and the price level is fixed. What is the consumption function? What is the equation of the AE curve? Calculate equilibrium expenditure. Calculate the multiplier. If investment decreases to $150 billion, what is the change in equilibrium expenditure? Describe the process in part (e) that moves the economy to its new equilibrium expenditure.arrow_forwardbased on macroeconomic theory, one of the following four answers is a correct description of the concept, “expenditure multiplier”. Which one? A/ It is the idea that decreasing national income affects the equilibrium level of GDP by the same amount of that decrease in income. B/ It is the concept that increasing national income affects the equilibrium level of GDP on par with the amount of increased income. C/ The expenditure multiplier is the idea that a given change in spending leads to an equal change in the equilibrium level of GDP. D/ It is the concept that an increase in spending causes a more than proportionate change in GDP.arrow_forwardSuppose the United States economy is represented by the following equations: Z = C + I + G C = 500 + .5YD T = 600 I = 300 YD = Y - T G = 2000 Given the above variables, calculate the equilibrium level of output. Now, assume that taxes increase from 600 to 700. What is the new equilibrium level of output? How much does income change as a result of this event? What is the multiplier for this economy?arrow_forward
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