Suppose autonomous government spending increases by $100 billion and the value of the MPC is 0.6. Use the following table to compute four rounds of the spending multiplier effect. New Consumption Spending Round Components of Total Spending (Billions of dollars) 1 Investment Consumption 3 Consumption Consumption After an infinite number of spending-output-spending rounds, the total change in real GDP resulting from the $100 billion increase in governr spending is S billion.

Suppose autonomous government spending increases by $100 billion and the value of the MPC is 0.6. Use the following table to compute four rounds of the spending multiplier effect. New Consumption Spending Round Components of Total Spending (Billions of dollars) 1 Investment Consumption 3 Consumption Consumption After an infinite number of spending-output-spending rounds, the total change in real GDP resulting from the $100 billion increase in governr spending is S billion.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. Graphing the consumption function from the MPC Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.50. That is, if disposable income increases by $1, consumption increases by 50¢. Suppose further that last year disposable income in the economy was $450 billion and consumption was $350 billion. On the following graph, use the blue line (circle symbol) to plot this economy's consumption function based on these data. CONSUMPTION (Billions of dollars) 700 600 500 400 300 200 100 0 -100 0 100 200 300 400 500 600 DISPOSABLE INCOME (Billions of dollars) 700 800 (?) From the preceding data, you know that the level of saving in the economy last year was $ economy is billion and the marginal propensity to save in this Suppose that this year, disposable income is projected to be $550 billion. Based on your analysis, you would expect consumption to be S billion and saving to be $ billion.
Given an economy is currently producing at $1.2T rGDP, natural rGDP is $1.3T, and the MPC is 0.9, then the multiplier for increases in aggregate expenditures is: 10 A (whole number, no decimals). This means the federal government should increase its expenditures by A (whole number) billion dollars.
Government expenditures represents one of the injections of expenditure. Explain how an increase in government spending may have a multiplier effect in the economy.
Refer to the table on the next page in answering the questions that follow:a. If full employment in this economy is 130 million, will there be an inflationary expenditure gap or a recessionary expenditure gap? What will be the consequence of this gap? By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the inflationary expenditure gap or the recessionary expenditure gap? Explain. What is the multiplier in this example?b. Will there be an inflationary expenditure gap or a recessionary expenditure gap if the full-employment level of output is $500 billion? Explain the consequences. By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the gap? What is the multiplier in this example? c. Assuming that investment, net exports, and government expenditures do not change with changes in real GDP, what are the sizes of the MPC, the MPS, and the multiplier?
Using the table below to answer the following questions. Assume all values represent trillions of dollars. Construct a graph of the Aggregate planned expenditure What is the equilibrium expenditure? Explain what happens at a real GDP of $4 trillion dollars. (Note the aggregate expenditures and the effects on inventories) What are your total autonomous expenditures? What is the marginal propensity to consume? Ignoring imports and income taxes, what is the multiplier? If investment increases by $1.5 trillion, what is the change in real GDP?
Given the following information:C0=150, MPC=0.25I0=150G0=350t=0.1i. Write out the consumption functionCalculate;ii. Autonomous spending. iii. The simple multiplier. iv. Equilibrium income level. v. Total spending.
The multiplier effect of a change in government purchases Suppose there is some hypothetical closed economy in which households spend $0.75 of each additional dollar they earn and save the remaining $0.25. The marginal propensity to consume (MPC) for this economy is (0.25 or 0.75 or 1 or 1.33 or 4), and the spending multiplier for this economy is (0.25 or 0.75 or 1 or 1.33 or 4). Suppose the government in this economy decides to decrease government purchases by $250 billion. The decrease in government spending will lead to a decrease in income, creating an initial change in consumption equal to (-$1,000 billion or -$187.5 billion or -$93.8 billion or - $62.5 billion or -500 billion). This decreases income yet again, leading to a second change in consumption equal to (- $93.8 billion or - 1,000 billion or - $500 billion or - $140.6 billion or -62.5 billion). The total change in demand resulting from the initial change in government spending is (-$1 trillion or - $1.9…
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6 If the marginal propensity to consume (MPC) is 0.40, the expenditure multiplier will be equal to _______ . (Enter your answer using ONE decimal place)
21 Homework Unanswered Due Mar 17th, 11:59 PM → Important Suppose the initial change in spending is $12 billion. The indirect effects of that change cause a change in total spending of $24 billion. What is the mpc? Type your numeric answer and submit