PotentialGDP450C+l+G+X-IM)FT4,000 5,000 6,000Real GDP(billions of dollars per year)In Figure 11-1, the slope of the expenditures schedule is 0.75, and the govemment wishes to achieve full employment. It shouldcut spending by 1,000.increase spending by 250.cut taxes by 1,000.cut taxes by 250.increase spending by 1,000.Real Expenditure

Recessionary gap is when Real GDP is less than potential GDP.Answer is Increase spending by 250. Slope of aggregate expenditure = 0.75, Which means MPC i.e marginal propensity to consume = 0.75 Multiplier = 1 / 1 - MPC Multiplier = 1 / 1 - 0.75 Multiplier = 1 / 0.25 Multiplier = 4 From Equilibrium E to F, the recessionary gap is of $1000 billion. To enable the economy to move from equilibrium E to F, Real GDP has to be raised from $5000 billion to $6000 billion. Required increase in government spending = Required increase in Real GDP / Multiplier Required increase in government spending = $1000 billion / 4 Required increase in government spending = $250 billion. Increase in spending by government by $250 billion would cause the Real GDP to increase by $1000 billion through multiplier effect. And thus Real GDP would increase from $5000 billion to $6000 billion and reach full employment equilibrium.

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Potential GDP C+1+G+X-IM) ,00 5,000 6,000 Real GDP (billions of dollars per year) In Figure 11-1, the slope of the expenditures schedule is 0.75, and the govermment wishes to achieve full employment. It should O cut spending by 1,000. increase spending by 250. cut taxes by 1,000. cut taxes by 250. increase spending by 1,000. Real Expenditure

Potential GDP C+1+G+X-IM) ,00 5,000 6,000 Real GDP (billions of dollars per year) In Figure 11-1, the slope of the expenditures schedule is 0.75, and the govermment wishes to achieve full employment. It should O cut spending by 1,000. increase spending by 250. cut taxes by 1,000. cut taxes by 250. increase spending by 1,000. Real Expenditure

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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6
Figure 25-4 Potential 45 GDP 3 Real GDP In Figure 25-4, if the economy is in a recessionary gap, what must happen to reach potential GDP? The expenditure level must rise and'or the price level must rise. The expenditure level must fall and'or the price level must rise. The expenditure level must fall and'or the price level must fall. The expenditure level must rise and/or the price level must fall. Real Expenditures
Y C I G X $ 100 $ 120 $ 20 $ 30 $ 10 $ 300 $ 300 $ 20 $ 30 - $ 10 $ 500 $ 480 $ 20 $ 30 - $ 30 $ 700 $ 660 $ 20 $ 30 - $ 50 a.What is the multiplier? b.What is the equilibrium level of the real GDP? c.What is the value of autonomous consumption?
2. Consumption function: C=500+0.8Yd, net tax: T=500, governmentspending: G=500, investment: I=1200, export: X=500 and imprt: M=700. According to this; a) Calculate the equilibrium level of output(Ye). b) Calculate the consumption and saving at Ye. c) Find the change in equilibrium level of output(Ye) if government spending increase 200. Use governmentspending multiplier.
Please answer letter D and E only.
1.The spending multiplier effect becomes bigger if a. the MPC becomes bigger and the MPM becomes smaller b. both the MPC and the MPM become bigger c. both the MPC and the MPM become smaller d. the MPC becomes smaller and the MPM becomes bigger 2. "The U.S. Department of Commerce has estimated that if U.S. manufacturers use metric measures, their increased ability to compete on world markets should increase exports by about $600 million and thus benefit the U.S. economy by between $1.2 billion and $1.8 billion." These numbers suggest that a. exports have a much smaller multiplier impact than other kinds of spending. b. the export spending multiplier is between 2 and 3. c. it takes between $1.2 and $1.8 billion increase in income to generate a $600 million increase in exports. d. imports should increase by between $1.2 and $1.8 billion. 3. The functions of the Federal Reserve System include all of the following, except: a.controlling the money supply b. promoting the stability of the…
d H-50 Home BIU ab Insert Page Layout Online class3 (1).docx - Microsoft Word 10 abc X₂ x Aa A A Font References Mailings Review View CM 24 Paragraph Picture Tools Format AaBbCcDdi AaBbCc AaBbCc Emphasis Heading 1 Heading 2 Styles 10 CA A Change Editing Styles EXERCISES FOR CHAPTER 6 Exercise 6.1 Suppose that in an economy with no government the aggregate expenditure function is: AE = 50+0.75Y. (a) Draw a diagram showing the aggregate expenditure function, and indicate the level of planned expenditure when income is 150. (b) In this same diagram, show what would happen to aggregate expenditure if income increased to 200. (c) What are the levels of autonomous expenditure and induced expenditure at income levels of 150 and 200. (d) In this same diagram show what would happen if autonomous expenditure increased by 20. Exercise 6.2 Suppose the media predicts a deep and persistent economic recession. Households expect their future income and employment prospects to fall. They cut back on…
QUESTION 7 Refer to the diagram. If the full-employment level of GDP is B and aggregate expenditures are at AE3, the: AE, AE, AE, e of k GDP O recessionary expenditure gap is BC. O recessionary expenditure gap is ed. O recessionary expenditure gap is AB. inflationary expenditure gap is BC. O inflationary expenditure gap is ed. Aggregate Expenditures
An economy has a fixed price level, no imports, and no income taxes. MPC is 0.9, and real GDP is $200 billion. Businesses increase investment by $10 billion. Calculate the new level of real GDP and explain why real GDP increases by more than $10 billion. *** The new level of real GDP is $100 billion. Real GDP increases by more than $10 billion because the increase in investment OA. enables firms to produce more output B. increases exports C. induces an increase in consumption expenditure D. increases the marginal propensity to consume
Suppose that the level GDP increased by $100 billion in a private closed economy where the marignal propensity to consume is 0.8. Aggregate expenditures must have increased by A. 20 billion b. 100 billion c. 80 billion d. 10 billion
please anwer ponit no:- 4, 3 and 2. (It will be nice if u answer all points)
Aggregate Expenditures (Billions) 180 160- - 140 120 100 80 60 40+ 20 BCH 180 45 $20 40 60 QUESTION 15 Pearson VUE Navi... Pearson VUE - Da... 80 100 120 140 160 180 200 Real GDP (Billions) Refer to the diagram for a private closed economy. In this economy, aggregate expenditures Odo no change as GDP increases. increase by $2 for every $5 increase in GDP. increase by $2 for every $4 increase in GDP. increase by $2 for every $3 increase in GDP. Florida Insurance:... ( Un