ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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- Explain the effects of the following actions on equilibrium income, assuming that the marginal propensity to consume is 0.8
A. Government purchases rise by $40 billion
B. Taxes fall by $40 billion.
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- Question: Use The Following Information To Work Problems 4 To 6. In An Economy With No Exports And No Imports, Autonomous... Use the following information to work Problems 4 to 6. In an economy with no exports and no imports, autonomous consumption is $1 trillion, the marginal propensity to consume is 0.8, investment is $5 trillion, and government expenditure on goods and services is $4 trillion. Taxes are $4 trillion and do not vary with real GDP. 4. If real GDP is $30 trillion, calculate disposable income, consumption expenditure, and aggregate planned expenditure. What is equilibrium expenditure? 5. If real GDP is $30 trillion, explain the process that takes the economy to equilibrium expenditure. If real GDP is $40 trillion, explain the process that takes the economy to equilibrium expenditure. 6. If investment increases by $0.5 trillion, calculate the change in equilibrium expenditure and the multiplier.arrow_forwardAn increase in the marginal propensity to consume will make the spending multiplier ? An increase in taxes as a portion of income will make the spending mitltiplierarrow_forwardConsider an economy in which the marginal propensity to consume is 0.75, prices are constant, G is initially 1,500, taxes are autonomous (not related to income) and are initially 2,000, transfer payments are initially 500, and GDP is initially 8,200. The economy is currently experiencing an inflationary gap. The government wishes to eliminate the gap and intends to reduce GDP to 7,000, and is considering changing government purchases, or taxes, or transfer payments. What new levels of these fiscal policy tools would be needed? In each case, what would the new government surplus or deficit be?arrow_forward
- Need help what formulas are used to answer questions please show step by step Assume the MPC is 0.75 and policy makers have targeted real GDP to decrease by $300 billion. By how much must taxes be increased to achieve this goal? Assume the MPC is 0.70 and the government increases spending on public school programs by $20 billion. What is the value of the initial impact on real GDP? What is the value of the total impact on real GDP?arrow_forwardQuestion 3 of 16 Income and consumption changes for five people are shown in the table. Given this information, rank the marginal propensities to consume (MPC) for the five people from largest to smallest. Largest MPC Smallest MPC Answer Bank Bert Doug Eli Carter Al Name Income change Consumption change Al +$5,000+$5,000 +$3,000+$3,000 Bert +$2,500+$2,500 +$800+$800 Carter +$1,000+$1,000 +$800+$800 Doug −$2,500−$2,500 −$1,750−$1,750 Eli −$5,000−$5,000 −$2,000−$2,000arrow_forward37. If the equilibrium level of GDP is $30,000, using the equations for C, I, G, and NX shown above, find the value of the marginal propensity to consume. C=4,000+ 0.5Y I= 1,500 G=2,250 NX=-150arrow_forward
- 3. When the following event occurs, the change in Real GDP = Event: The government increases its education funding by $60 billion; the marginal propensity to consume is 0.6. the multiplier.arrow_forwardd. Now G assumes its original value of G = 800. Congress decreases the tax rate from (1/2) to (1/4). i) Use a model to sketch the effect of the decrease in the tax rate when the price level is held constant. ii) What is the new marginal propensity to consume? iii) Calculate the new equilibrium level of income.arrow_forwardConsider the table given below. The marginal propensity to consume is a.0.2 b.0.4 0.0.6 d.0.8 National Income (GDP) Consumption Investment Government Expenditure 0 500 1,000 1,500 2.000 2,500 3.000 3,500 400 800 1.200 1.600 2,000 2,400 2,800 3.200 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50arrow_forward
- How does the marginal propensity to consume (MPC) determine how GDP responds to policy changes? If we want MPC to be high, what implications does this have for how we should design policies?arrow_forwardThe tax rate is 0.4. The marginal propensity to import is 0.5 . When real GDP increases from $20,000 to $20,198, consumption increases from $18,000 to $18,050. What is the marginal propensity to consume?arrow_forwardSuppose an economy had aggregate demand components with the following relationships: Consumption spending, C=140+.60*(DY) Investment spending,I=25+.15*Y Government Spending, G= 0 Net Export Spending,X=0 Tax collections, Tx=0 a. What is the equilibrium income for this economy? b. If the government decided to increase G spending by 6, what would be the new equilibrium income for this economy? c. If instead the government decided to reduce Tx (taxes) by 10, what would be the new equilibrium income for the economy? d. If instead the government decided to increase G spending and Increase Tx (taxes) by 20, what would be the new equilibrium for this economy?arrow_forward
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