Econ Macro (book Only)
6th Edition
ISBN: 9781337408745
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 11, Problem 6P
To determine
the effect on the size of the spending multiplier, when the investment has an autonomous component and a component that varies directly with the level of real GDP.
Concept Introduction:
Government purchases: Government purchases are the tools of fiscal policy by which government increase or decrease the aggregate demand of the economy and control the
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3. (3.5 points) Assume that when' aggregate income (ie, aggregate output, or Y) increases by $120 million in the country
of Intrometida aggregate consumption (C) there increases by $24 million.
a. Using the pieces of information just given, find the marginal propensity to consume (MPC) for the economy of
Intrometidar What is the marginal propensity to save (MPS) Show your work. Express your answers as either
fractions or the appropriate decimals.
MPC
MPS
(4. From 2009 to 2014, Eastlandia experienced large fluc-
tuations in both aggregate consumer spending and
disposable income, but wealth, the interest rate, and
expected future disposable income did not change. The
accompanying table shows the level of aggregate con-
sumer spending and disposable income in millions of
dollars for each of these years. Use this information to
answer the following questions.
Disposable income
(millions of dollars)
Consumer spending
(millions of dollars)
Year
2009
$100
$180
2010
350
380
2011
300
340
2012
400
420
2013
375
400
2014
500
500
a. Plot the aggregate consumption function for
Eastlandia.
b. What is the marginal propensity to consume? What
is the marginal propensity to save?
c. What is the aggregate consumption function?
4. (a) lf an initial increase in investment of $3 billion results in a $4.5 billion increase in equilibrium real output, what is the size of the spending multiplier?
(b) Calculate the MPW for this example.
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- Question 16 (Billions of Dollars) Yd $200 200 350 400 500 Which of the following represents the consumption function consistent with the data in the above table? 150 + 0.8Yd 200 + 0.75Yd 150 + 0.25Yd 200 + 0.2Ydarrow_forward(Shifts of Aggregate Demand) Assume the simple spending multiplier equals 3. Determine the size and direction of any changes of aggregate expenditure line, real GDP demanded, and the aggregate demand curve for each of the following changes in spending: a. Spending rises by $8 billion at each income level. b. Spending falls by $5 billion at each income level. c. Spending rises by $20 billion at each income level.arrow_forwardConsider the following table, which shows a household's disposable income and consumption expenditures. All values are expressed in dollars. Compute the marginal and average propensities to consume for each level of income and fill in the table. (Round your responses to two decimal places) Disposable Income (Y) 0 300 600 900 1,200 1,500 Desired Consumption (C) 420 660 900 1,140 1,300 1,620 MPC-ACIAY NA APC = C/Y₂ NAarrow_forward
- 3. Complete the accompanying table. (a) What is the break-even level of income? How is it possible for households to dissave at very low income levels? Level of output and income (GDP = DI) Consumption Saving MPS АРС APS MPC S182 -$5 207 232 257 10 282 15 307 20 332 25 357 30 382 35arrow_forward1. (a) The following equations describe an economy: C-100+ 0.75Yd I-50-25r T-G-50 Where C is aggregate consumption, Y is disposable income, I is aggregate investment. I is taxes, G is government purchases and r is the rate of interest. Derive the IS curve for the economy. Show the area of excess demand and excess supply in the goods market. (b) Draw the graph and explain the derivation of IS curve. 2. (a) Given the following data about the monetary sector of the economy: Ma -0.4Y-80r M₁ - 1200 million Where, Ma is demand for money, Y is the level of income, r is the rate of interest and M, is the supply of money. Derive the equation for LM curve and give the economic interpretation of this curve. Show the excess demand and excess supply in the money market. (b) Draw the graph and explain the derivation of LM curve. 3. Consider the following economy: C-100+ 0.8Yd I-50-25, G-T-50 M' P -200 M₁-Y-25r 1. Calculate the IS and LM curves. 2. Calculate the equilibrium levels of output (national…arrow_forward3. Complete the accompanying table. (a) What is the break-even level of income? How is it possible for households to dissave at very low income levels? Level of output and income (GDP = DI) Consumption Saving АРС APS MPC MPS $205 2$ -$5 230 255 5 280 10 305 15 330 20 355 25 380 30 405 35arrow_forward
- 5. Suppose the value of corn a household produces is the equivalent of 60 percent of its income and the value of the corn it consumes is the equivalent of 30 percent of its consumption expenditure. Household also earns 30% of their income from selling their family labor and does not purchase any labor. If the price of corn decreases by 40 percent and wage rate increases by 20 percent, calculate: a. Net rice sales as fraction of total consumption expenditure? b. Percentage effect on real purchasing power?arrow_forward(Changes in Government Purchases) Assume that government purchases decrease by $10 billion, with other factors held constant, including the price level. Calculate the change in the level of real GDP demanded for each of the following values of the MPC. Then, calculate the change if the government, instead of reducing its purchases, increased autonomous net taxes by $10 billion. 0.9 0.8 0.75 0.6arrow_forward4. (a) If an initial increase in investment of $3 billion results in a $4.5 billion increase in equilibrium real output, what is the size of the spending multiplier? (b) Calculate the MPW for this example.arrow_forward
- 4) Listen Consumption per period (billions of dollars) 券 $1,600 1,400 Consumption 1,200 శ్రీఎనాలడ్ =శ 1,000 800 400 200 $400 800 1,200 1,600 2,000 2,400 Disposable personal income per period (billions of dollars) Reference: Ref 11(26)-3 Figure: Consumption and Disposable Personal Income (Figure: Consumption and Disposable Personal Income) Use Figure: Consumption and Disposable Personal Income. When disposable personal income is $2,000 billion, consumption is billion.arrow_forward11 - : In an imaginary economy, if the disposable income is 200 and the consumption expenditure is 220, what are the savings? a) -20 B) -40 NS) -50 D) -10 TO) -30arrow_forward6. Aggregate expenditure and income Suppose the following table shows consumption (C), investment (I), government purchases (G), and net exports (NX) in a hypothetical economy for various levels of real GDP. Assume that the price level remains unchanged at all levels of real GDP. Real GDP с G NX (Billions of dollars) (Billions of dollars) (Billions of dollars) (Billions of dollars) (Billions of dollars) 500 250 250 200 -150 600 325 250 200 -150 700 400 250 200 -150 800 475 250 200 -150 900 550 250 200 -150 The following graph shows real GDP on the horizontal axis and aggregate expenditure on the vertical axis. Use the orange line (square symbol) to plot a 45-degree line on this graph. Then use the blue points (circle symbols) to plot the aggregate expenditure line for this economy. Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. AGGREGATE EXPENDITURES (Billions of dollars) 1000 900 800 700 600 500 400 400…arrow_forward
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