Macroeconomics (7th Edition)
7th Edition
ISBN: 9780134738314
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Question
Chapter 12, Problem 12.4.7PA
Subpart (a):
To determine
The equilibrium level of GDP and MPC.
Subpart (b):
To determine
The MPC of the economy.
Subpart (c):
To determine
The Multiplier value.
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Consider an economy described by the following equations. Y= C + I + GC= 100 + .75 (Y - T)I= 500 - 50rG= 125T= 100
Where: Y is GDP, C is consumption, I is investment, G is government spending, T is taxes and r is the rate of interest.
Answer the questions based on the following equations above.
a. What is the value of the multiplier?
b. What is the equilibrium equation for Y? Show your solution.
c. Suppose the Central Bank policy is to adjust the money supply to maintain the interest rate at 4 percent, so r=4. What is the value of output? Show your solution.
d. Assuming that no change in fiscal policy, what is the effect of a reduction in interest rate from 4 percent to 3 percent on equilibrium output. Show your solution.
e. In this case, explain the policy that was used by the policymaker to target the aggregate demand.
Is the relationship between changes in spending and changes in real GDP in the multiplier effect a direct (positive) relationship or is it an inverse (negative) relationship? How does the size of the multiplier relate to the size of the MPC? The MPS? What is the logic of the multiplier-MPC relationship?
Answer the following questions, which relate to the aggregate expenditures model:a. If Ca is $100, Ig is $50, Xn is -$10, and G is $30, what is the economy’s equilibrium GDP?b. If real GDP in an economy is currently $200, Ca is $100, Ig is $50, Xn is -$10, and G is $30, will the economy’s real GDP rise, fall, or stay the same?c. Suppose that full-employment (and full-capacity) output in an economy is $200. If Ca is $150, Ig is $50, Xn is -$10, and G is $30, what will be the macroeconomic result?
Chapter 12 Solutions
Macroeconomics (7th Edition)
Ch. 12.A - Prob. 1RQCh. 12.A - Prob. 2RQCh. 12.A - Prob. 3RQCh. 12.A - Prob. 4RQCh. 12 - Prob. 12.1.1RQCh. 12 - Prob. 12.1.2RQCh. 12 - Prob. 12.1.3RQCh. 12 - Prob. 12.1.4PACh. 12 - Prob. 12.1.5PACh. 12 - Prob. 12.1.6PA
Ch. 12 - Prob. 12.1.7PACh. 12 - Prob. 12.1.8PACh. 12 - Prob. 12.1.9PACh. 12 - Prob. 12.2.1RQCh. 12 - Prob. 12.2.2RQCh. 12 - Prob. 12.2.3RQCh. 12 - Prob. 12.2.4RQCh. 12 - Prob. 12.2.5RQCh. 12 - Prob. 12.2.6PACh. 12 - Prob. 12.2.7PACh. 12 - Prob. 12.2.8PACh. 12 - Prob. 12.2.9PACh. 12 - Prob. 12.2.10PACh. 12 - Prob. 12.2.11PACh. 12 - Prob. 12.2.12PACh. 12 - Prob. 12.2.13PACh. 12 - Prob. 12.2.14PACh. 12 - Prob. 12.2.15PACh. 12 - Prob. 12.3.1RQCh. 12 - Prob. 12.3.2RQCh. 12 - Prob. 12.3.3RQCh. 12 - Prob. 12.3.4RQCh. 12 - Prob. 12.3.5RQCh. 12 - Prob. 12.3.6PACh. 12 - Prob. 12.3.7PACh. 12 - Prob. 12.3.8PACh. 12 - Prob. 12.3.9PACh. 12 - Prob. 12.3.10PACh. 12 - Prob. 12.3.12PACh. 12 - Prob. 12.4.1RQCh. 12 - Prob. 12.4.2RQCh. 12 - Prob. 12.4.3RQCh. 12 - Prob. 12.4.4PACh. 12 - Prob. 12.4.5PACh. 12 - Prob. 12.4.6PACh. 12 - Prob. 12.4.7PACh. 12 - Prob. 12.4.8PACh. 12 - Prob. 12.4.9PACh. 12 - Prob. 12.4.10PACh. 12 - Prob. 12.4.11PACh. 12 - Prob. 12.4.12PACh. 12 - Prob. 12.4.13PACh. 12 - Prob. 12.4.14PACh. 12 - Prob. 12.5.1RQCh. 12 - Prob. 12.5.2RQCh. 12 - Prob. 12.5.3RQCh. 12 - Prob. 12.5.4PACh. 12 - Prob. 12.5.5PACh. 12 - Prob. 12.5.6PACh. 12 - Prob. 12.1RDECh. 12 - Prob. 12.2CTECh. 12 - Prob. 12.3CTE
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- Use the diagram to the right to answer the following: a. The equilibrium value of real GDP is $ trillion. (Enter your response as a whole number.) b. The MPC is equal to (Enter your response rounded to two decimal places.) c. The multiplier is equal to (Enter your response rounded to one decimal place.) d. What is the value of unplanned changes in inventories when real GDP has each of the following values? (Enter your responses rounded to one decimal place and include a minus sign if necessary.) GDP $10 trillion $12 trillion $14 trillion Unplanned Inventories trillion trillion trillion C Aggregate Expenditure, AE ($, trillions) 24.0- 22.0 ≈ ≈ ¦ CO 20.0- 18.0- 16.0- 14.0- 12.0+ 10.0- 8.0- 6.0- 4.0- 2.0- 0.0- O. 13.6 12.0 10.4 0 45° -~ 2 4 AE 10:12:14 10 12 14 16 18 20 22 24 6 8 Real GDP, Y ($, trillions) Garrow_forwardAssume that the parameters of a particular economy are as follows: MPC = 0.6, MPM = 0.1. What is the value of the multiplier?arrow_forwardHow is it possible for investment spending to increase even in a period in which the real interest rate rises? Is the relationship between changes in spending and changes in real GDP in the multiplier effect a direct (positive) relationship or is it an inverse (negative) relationship? How does the size of the multiplier relate to the size of the MPC? The MPS? What is the logic of the multiplier-MPC relationship?arrow_forward
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