Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 10, Problem 14E
To determine
To compute:
The value of new equilibrium level of real GDP when the government spending increases by $15.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
THE AGGREGATE EXPENDITURE MODEL (IN THE SHORT RUN)YOU MUST SHOW YOUR CALCULATIONS IN THE SPACE BELOWFOR THE NEXT PROBLEM USE THE FOLLOWING FORMULA:CHANGE IN GDP = [ 1 / (1-MPC) ] * CHANGE IN GInitially, the economy is producing $13 trillion in goods and services and the government is spending $2 trillion.Then the government decides to increase its spending to $2.7 trillion.
What is the value of the spending multiplier?
What is the relative importance of government spending (G) in aggreagte demand and some factors that affect it?
What is the difference between tax cuts imposed on higher-income households compared with lower- and middle-income households? Discuss the implications for the multiplier and the effectiveness of the tax cuts for boosting GDP.
Knowledge Booster
Similar questions
- Exercise D24 Compare two policies: a tax cut on income or an increase in government spending on roads and bridges. What are both the short-term and long—term impacts of such policies on the economy?arrow_forwardBriefly discuss the following concepts iv. Government expenditure multiplierv. Potential outputarrow_forwardK The following equations describe consumption, investment, government spending, taxes, and net exports in the country of Economika. In Economika, equilibrium GDP is equal to $. (Round your asnwer the nearest dollar.) If real GDP in Economika is currently $4,850, which of the following is true? A. There will be an unplanned decrease in inventories, and real GDP will increase next period. OB. There will be an unplanned increase in inventories, and real GDP will increase next period. OC. There will be an unplanned decrease in inventories, and real GDP will decrease next period. O D. There will be an unplanned increase in inventories, and real GDP will decrease next period. OE. There will be no unplanned change in inventories, and real GDP will stay the same next period. C=200+0.80(Y-T) 1=400 G=350 T=350 X = 100arrow_forward
- If there is an increase in government spending how can you solve the change in equilibrium Y? What's the formula?arrow_forwardThe following graph shows the aggregate expenditures line (AE) for an economy where current equilibrium output is $400 billion and full-employment output is $650 billion. AGGREGATE EXPENDITURES (Billions of dollars) 800 700 600 500 400 300 200 100 0 0 100 45-degree line 200 300 400 500 600 REAL GDP (Billions of dollars). The economy is experiencing a require a s billion AE Full-employment GDP 800 700 AE ? billion. To close the GDP gap would GDP gap with the absolute value of the gap equal to s in government spending. Thus the spending multiplier for this economy is On the graph, shift the AE line to show the change in the aggregate expenditures line necessary to close the GDP gap.arrow_forwardAggregate Expenditures 800 600 400 200 0 15 04 Income Refer to the above graph to answer this question. What is the value of the multiplier in this economy? 200 400 600 800 1000 167 A AE 02 O Cannot be determined.arrow_forward
- If the MPC is 0.9 what will happen to GDP if the government cut spending bt $2.arrow_forwardUse the table below to answer the following questions. Real Consumptio GDP n $300 310 320 330 340 350 360 $290 298 306 314 322 330 338 (a) What is the size of the multiplier in this economy? Now, calculate the multiplier when the MPS is .5, .25, .10. What is the relationship between MPS and the multiplier? (b) If taxes were zero, government purchases were $10, investments $6, and net exports were zero, what is the equilibrium GDP? (c) If taxes are $5, government purchases are $10, investment is $6, and net exports are zero, what is the equilibrium GDP? (d) Assume that investment, net exports, and taxes are zero. Government purchases are $30, and the full-employment GDP without inflation is $330. How much must government spending be reduced to eliminate the inflationary expenditure gap?arrow_forwardIf the spending multiplier is 10, a S100 increase in government spending and Sl00 increase in taxes, will cause a inerease in GDP by 0 100 900 $1,000arrow_forward
- what is MPC, MPS and spending multiplier?arrow_forwardFigure 3-3 45° Planned Expenditure 200 + 0.75Y 45 Income (Y) In the figure above: a. Find the equilibrium GDP. What happens to the left of that equilibrium? What happens to the right? b. When income is $1,000, what is the unplanned inventory? c. What is the GDP multiplier? d. What is the tax multiplier? e. How much should government expenditures increase if the government wants to increase GDP from the equilibrium level found at point a) to 1,000? f. How much should taxes decrease if the government wants to increase GDP from the equilibrium level found at point a) to 1,000? Planned Expenditurearrow_forwardExplain the concept of the spending multiplier.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics 2eEconomicsISBN:9781947172364Author:Steven A. Greenlaw; David ShapiroPublisher:OpenStax
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Principles of Economics 2e
Economics
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:OpenStax
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning