Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 23, Problem 4.5P
Subpart (a):
To determine
MPC and MPS.
Subpart (b):
To determine
Graphing the equations and solving the equilibrium income.
Subpart (c):
To determine
New equilibrium income, multiplier.
Subpart (d):
To determine
Savings function.
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Students have asked these similar questions
Consider the imaginary small country of Kootenay. Assume that Kootenay is closed to trade, so that its net exports are equal to zero. Suppose that the economy is described by the following consumption function, where C is consumption, Y is income (real GDP), IP is planned investment, G is government purchases, and T is taxes:
C
=
$40 billion+0.5×(Y – T)
Suppose G=$115 billion, IP=$50 billion, and T=$10 billion.
Given the consumption function and the fact that, in a closed economy, planned expenditure can be calculated as Y=C+IP+G, the equilibrium income level is
billion.
Suppose that government purchases are increased by $100 billion. The new equilibrium level of income will be equal to
billion.
Based on the effect of the change in government purchases on equilibrium income, you can tell that this economy's multiplier is equal to
Consider the following is the economy of
Country Z:
C = 200 + 0.85Y
I= 100
Answer the following questions:
Calculate the equilibrium level of output
algebraically using the saving-investment (S-I)
approach.
Due to an increase in consumer wealth, there is a $40 billion autonomous increase in consumer spending in the economies of Westlandia and Eastlandia. Assuming that the aggregate price level is constant, the interest rate is fixed in both countries, and there are no taxes and no foreign trade, complete the accompanying tables to show the various rounds of increased spending that will occur in both economies if the marginal propensity to consume is 0.5 in Westlandia and 0.75 in Eastlandia. What do your results indicate about the relationship between the size of the marginal propensity to consume and the multiplier?
Chapter 23 Solutions
Principles of Economics (12th Edition)
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