MACROECONOMICS
14th Edition
ISBN: 9781337794985
Author: Baumol
Publisher: CENGAGE L
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Question
Chapter 9.B, Problem 2TY
To determine
To Draw: 45°line diagram and the equilibrium
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In the future report of U.S. Gross Domestic Product (GDP) for Quarter 1 of 2023, which of the following would not be an example of an expenditure that would contribute to an increase in the level of GDP in Q1 of 2023? [note: focus on the direct impact of each of the choices below]
Group of answer choices
U.S. household spending on home appliances increases by 0.5% in 2023:Q1
Business investment spending on industrial equipment rises by 2% in 2023:Q1
U.S. Federal government interest payments rise by $120 billion in 2023:Q4
U.S. consumer spending on domestic air travel increases by 8% in 2023:Q1.
None of the choices listed because all would contribute to an increase in real GDP in 2023:Q1.
For the data in the following table, the consumption function is C=800+0.6(Y-T). fill in the columns in the table and identify the equilibrium output. graph aggregate expenditure
Examine the graph above. Suppose that government increases its spending, shifting the aggregate expenditure line upwards. GDP increases from GDP1 to GDP2, and this amount is $550 billion. If the MPC is 0.8, calculate the difference between the points N and L to find out by how much the government spending changed.
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- Suppose the aggregate expenditure schedule for an economy is given by the equation: AE = 800 + 0.8Y Where AE represents the aggregate expenditure and Y represents the national income (output) level. Calculate the equilibrium level of national income in this economy.arrow_forwardConsider the following model of national income determination C = 3000 + 0.75 (y- t) T = 1000 I= 4750 G = 1500 Y=E=C+I+G Solve for the equilibrium values for all the endogenous variables Suppose the government expenditure increased by 500 find the new equilibrium value Calculate the value of the government spending multiplierarrow_forwardThe accompanying graph represents the aggregate consumption function for the small island nation of Pineapple Paradise. The people of Pineapple Paradise expect their future disposable income to increase. Use the graph to show an increase in consumption expenditures. What is the new level of aggregate autonomous consumer spending? 1 $1000 2 $3000 3 $2000 4 $4000arrow_forward
- The private consumption of Macroland is given by C=500+0.75Y and the private investment function is given by I=400−1000r, where r is the interest rate and Y is the GDP. The planned aggregate expenditure can therefore be written as PE=C+I=900+0.75Y−1000r. The equilibrium in the goods and services market happens when the planned expenditure is equal to the actual expenditure, or PE=Y Find the equilibrium GDP by solving the system of equations PE=900+0.75Y-1000r PE= Y for Y and PE. Note your solutions will depend on r! 1. Plot your solution for Y in a diagram measuring Y on the horizontal axis and r on the vertical axis. This curve is called the IS curve.arrow_forwardTo graphically represent this, you can create a simple Keynesian cross diagram. On the vertical axis, plot the national income (Y), and on the horizontal axis, plot the aggregate expenditure (C + I + G). The equilibrium point will be where the aggregate expenditure line intersects the 45-degree line representing national income. add explanationarrow_forwardConsider the following model of an economy with no international trade, and in which the price level is fixed: C = 40 + (8/9)∙DI I = 30 G = 30 Taxes = (1/8)∙GDP where C is consumption demand, DI is disposable income, I is planned investment, G is government purchases, and all whole numbers are in billions of dollars. Determine the equilibrium level of production (GDP) in this economy (show your work), and draw this equilibrium situation on a graph. Use the multiplier to determine the change in equilibrium GDP that would result from an exogenous 16 billion dollar increase of government purchases. Then determine…arrow_forward
- Construct a consumption function from the data given here and determine the MPC. Given the consumption function in the above question, what is the relationship between disposable income and consumption? Is it direct or indirect and then explain what it means.arrow_forwardIf all 110 million households spent the same additional dollars on appliances, electronics, and furniture as the sample 30,000 rebate receiving households did so, how much did aggregate consumption increase?arrow_forwardsuppose the government in this economy decides to decrease government purchases by 300 billion decrease in government purchases will lead to a decrease in income generating an initial change in consumption equal toarrow_forward
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