Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
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Chapter 11, Problem 11E
To determine
Assume that the equilibrium real
Calculate the size of the GDP gap.
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Students have asked these similar questions
Equations for C, I, G, and NX are given below. If the equilibrium level of GDP is $32,000, what will the new equilibrium level of GDP be if government spending increases to 2,500?C = 5,000 + (MPC)YI = 1,500G = 2,000NX = -500
Please answer the following questions based on the given
information: a = 50, MPC -0.8, 1-100, G-200, EX-100,
IM- 50 (where a is the autonomous spending. MPC is the
marginal propensity to consume, I is the investment, G is the
government spending, EX is the export, and IM is the import)
1) What is the equilibrium level of output (income), Ye, in this
economy? 50
Agg
Expenditure
C+I+G+NX-
M+I+G+NX
p
Agg
Expenditure
Income (Real GOP)
2) Suppose the Ye
(actual GDP) that you derived from the
previous question is lower than the potential GDP level.
Calculate the G' value to find how much the government
spending is required to reach the potential GDP at 2,400? G
48
degree
P" =>
↑
C++G+Nxx
Aus GDP
AET-CH-GNX
AEZ-C+I+G+NX
Y, GDP)
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?
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- If the MPC is .6 and the equilibrium GDP is $30 billion below the full employment GDP, then the size of the recessionary expenditure gap is?arrow_forwardThe following are exogenous (not directly affected by income): G = 11 I = 4 X = M = 0 The consumption function is: C = k + cY, where k = 3, c = 0.8 What is the equilibrium level of GDP? What is the multiplier?arrow_forwardThe following are exogenous (not directly affected by income): G = 9 I = 14 X = M = 0 The consumption function is: C = k + cY, where k = 8, c = 0.6 What is the equilibrium level of GDP? State to ONE decimal place What is the multiplier for this economy? The following are exogenous (not directly affected by income): G = 11 I = 4 X = M = 0 The consumption function is: C = k + cY, where k = 3, c = 0.8 What is the equilibrium level of GDP? What is the multiplier? Same information as in the previous question: The following are exogenous (not directly affected by income): G = 11 I = 4 X = M = 0 The consumption function is: C = k + cY, where k = 3, c = 0.8 Imagine the maximum potential output or real GDP of this economy is 100. Assume that is the same as saying we reach the edge of the PPF at 100. Now assume we want to get that economy from the current level of GDP to its maximum potential of 100. We can do this in two ways - either increase government spending (G) or reduce taxes, (we…arrow_forward
- Suppose the government increases expenditures by $50 billion and the marginal propensity to consume is 0.90. By how much will equilibrium GDP change? The change in equilibrium GDP is: $ billion. (Round your solution to one decimal place.)arrow_forwardAnswer exercises 11-14 on the basis of the following information. Assume that equilibrium real GDP is $800 billion, potential real GDP is $950 billion, the MPC is .80, and the MPI is .40.arrow_forwardcan you please answer strating form D to F Given the information below, answer the questions that follow. C = $40 + 0.8Y I = $30 G = $40 X – M = -$10 a) What is the equilibrium GDP? Explain why $550 is not the equilibrium. b) What is the marginal propensity to consume (MPC) in this question? (Explain) c) What is the multiplier in this question and explain the significance of the multiplier? (Show all work) d) Assuming that the full employment level of output is $600, what kind of gap exists and how large is it? Explain e) If transfer payments increased by $10 and the price level did not change, what would the new equilibrium be? (Show all work) f) How would your answer to part (e) change if the price level did change?arrow_forward
- The following exercises are based on the Appendix to this chapter. Answer exercises 11-14 on the basis of the following information. Assume that equilibrium real GDP is $800 billion, potential real GDP is $950 billion, the MPC is .80, and the MPI is .40. 11. What is the size of the GDP gap? 12. How much must government spending increase to eliminate the GDP gap? 13. How much must taxes fall to eliminate the GDP gap? 14. If government spending and taxes both change by the same amount, how much must they change to eliminate the recessionary gap? 15. Suppose the MPC is .90 and the MPI is .10. If govern- ment expenditures go up $100 billion while taxes fallarrow_forwardIf the level of autonomous expenditures in the economy is $640 b, and the mpe = .8, what is the equilibrium level of GDP? 2arrow_forwardConsider an economy where the various components of expenditure follow these equations: C = 10 + 0.8Yd I = 500 G = 100 X = 300 М — 0.1Y T = 0.1Y c. Calculate the equilibrium level of GDP in this economy, highlighting what are the values of the Keynesian multiplier and the autonomous components of expenditure.arrow_forward
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