EBK MACROECONOMICS
21st Edition
ISBN: 8220103959902
Author: McConnell
Publisher: YUZU
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Chapter 12.A, Problem 1ARQ
To determine
Impact of increasing price level on aggregate expenditure.
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5. Refer to the data in the table that
accompanies problem 2. Suppose that
the present equilibrium price level and
level of real GDP are 100 and $225, and
that data set B represents the relevant
aggregate supply schedule for the
economy. LO12.6
a. What must be the current amount of
real output demanded at the 100 price
level?
b. If the amount of output demanded
declined by $25 at the 100 price level
shown in B, what would be the new
equilibrium real GDP? In business
суcle
economists call this change in real
terminology,
what
would
GDP?
Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy's multiplier is 4. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? In what direction and by how much will it eventually shift?
4. LO 4 In Figure 3.11, after the 1981-1982 reces-
sion, does the price level appear to be procyclical,
countercylical, or acyclical? Why is this important?
Chapter 12 Solutions
EBK MACROECONOMICS
Ch. 12.7 - Prob. 1QQCh. 12.7 - Prob. 2QQCh. 12.7 - Prob. 3QQCh. 12.7 - Prob. 4QQCh. 12.A - Prob. 1ADQCh. 12.A - Prob. 2ADQCh. 12.A - Prob. 1ARQCh. 12.A - Prob. 2ARQCh. 12.A - Prob. 1APCh. 12.A - Prob. 2AP
Ch. 12 - Prob. 1DQCh. 12 - Prob. 2DQCh. 12 - Prob. 3DQCh. 12 - Prob. 4DQCh. 12 - Prob. 5DQCh. 12 - Prob. 6DQCh. 12 - Prob. 7DQCh. 12 - Prob. 8DQCh. 12 - Prob. 9DQCh. 12 - Prob. 1RQCh. 12 - Prob. 2RQCh. 12 - Prob. 3RQCh. 12 - Prob. 4RQCh. 12 - Prob. 5RQCh. 12 - Prob. 6RQCh. 12 - Prob. 7RQCh. 12 - Prob. 8RQCh. 12 - Prob. 9RQCh. 12 - Prob. 1PCh. 12 - Prob. 2PCh. 12 - Prob. 3PCh. 12 - Prob. 4PCh. 12 - Prob. 5P
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- Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy�s multiplier is 3. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? The aggregate demand curve will shift_____ by $____ billion. In what direction and by how much will it eventually shift? The aggregate demand curve will shift_____ by $____ billion..arrow_forwardWhich of the following changes in personal income tax would lead to the smallest increase in consumption? O a. O b. a $15 000 decrease in taxes, if MPC equals 0.6 O c. a $30 000 decrease in taxes, if MPC equals 0.25 Oe. a $20 000 decrease in taxes, if MPC equals 0.5 O d. a $12 000 decrease in taxes, if MPC equals 0.75 a $10 000 decrease in taxes, if MPC equals 0.2arrow_forwardConsider a closed economy (no trade) where: C = 400+0.8YD lo = 1600 Go = 2200 NT = 0.2Y a. Calculate Y*. b. If Yp=10,000, is there an inflationary or recessionary gap? c. Calculate the change in government expenditure (G) necessary to move the economy back to its potential.arrow_forward
- Suppose that the table presented below shows an economy's relationship between real output and the inputs needed to produce that output: Input Quantity Real GDP 150.0 $ 400 112.5 300 75.0 200 Instructions: Enter your responses answers rounded to 2 decimal places. a. What is the level of productivity in this economy? b. What is the per-unit cost of production if the price of each input unit is $2? $ C. Assume that the input price increases from $2 to $3 with no accompanying change in productivity. What is the new per-unit cost of production? In what direction would the $1 increase in input price push the economy's aggregate supply curve? (Click to select) v What effect would this shift of aggregate supply have on the price level and the level of real output? O The price level would decrease and real output would increase. O Both the price level and real output would remain the same. O The price level would decrease and real output would remain the same. O The price level would increase…arrow_forwarddemanded equal, exceed, or fall short of quantity supplied? llowing L012.4 c. Suppose that buyers desire to purchase $200 billion of extra real output at each price level. Sketch in the new aggregate By what amount? demand curve as AD,. What are the new equilibriumsate Real GDP level and level of real output? 4. Suppose that the table presented below shows an economy's relationship between real output and the inputs needed to pro- 225 225 duce that output: LO12.4 225 Real GDP 225 Input Quantity 150.0 $400 in the t run? 112.5 300 75.0 200 ut per a. What is productivity in this economy? b. What is the per-unit cost of production if the price of each input unit is $2? c. Assume that the input price increases from $2 to $3 with no accompanying change in productivity. What is the new per- unit cost of production? In what direction would the $1 increase in input price push the economy's aggregate supply curve? What effect would this shift of aggregate supply have on the price level and the…arrow_forwardd. A decrease in aggregate demand. e. An increase in aggregate demand that exceeds an increase in aggrega supply.arrow_forward
- LAST WORD What is Say's law? How does it relate to the view held by classical economists that the economy generally will operate at a position on its production possibilities curve? Use production possibilities analysis to demonstrate Keynes's view on this matter.arrow_forwardSuppose aggregate demand in the economy sharply decines. Keynesian economists say that the price level (at least for a time) will and real output wil O remain constant; decrease Increase; remain constant remain constant; increase decrease; remain constant lo000arrow_forwardFigure: Aggregate Expenditures Curve II Aggregate expenditures (per year) $800 Reference: Ref 11-16 45-degree line AE $2,000 Real GDP (per year) (Figure: Aggregate Expenditures Curve II) The slope of the aggregate expenditures curve in the aggregate expenditures model shown in this figure is: O 45 degrees. O 0.6. O 0.5. O 0.25.arrow_forward
- 2. L Give Up! Suppose the Japanese economy has been experiencing slow growth. As a result, the Prime Minister, who thinks John Maynard Keynes was the greatest economist ever, has decided to increase government spending. The Prime Minister asks the head of the economic council to determine the increase in government spending necessary to bring the economy to full employment. Assume there is a GDP gap of 1 trillion yen and the marginal propensity to consume (MPC) is 0.60. What advice should the head of the economic council give the Prime Minister? O The recessionary gap is equal to 400 billion yen. O The inflationary gap is equal to 400 billion yen. O The recessionary gap is equal to 625 billion yen. O The inflationary gap is equal to 625 billion yen.arrow_forward9:22 1 LTE Aggregate D&S assignment chap 12.... Assignment Chapter 12 1. Suppose that the aggregate demand and aggregate supply schedules for a hypothetical economy are as shown below: LO5 Amount of Amount of Real GDP Real GDP Demanded, Billions Price Level Supplied, Billions (Price Index) $100 300 $450 200 250 400 300 200 300 400 150 200 500 100 100 a. Use these sets of data to graph the aggregate demand and aggregate supply curves. What is the equilibrium price level and the equilibrium level of real output in this hypothetical economy? Is the equilibrium real output also necessarily the full-employment real output? b. If the price level in this economy is 150, will quantity demanded equal, exceed, or fall short of quantity supplied? By what amount? If the price level is 250, will quantity demanded equal, exceed, or fall short of quantity supplied? By what amount? c. Suppose that buyers desire to purchase $200 billion of extra real output at each price level. Sketch in the new…arrow_forwardIn the Keynesian AE model, if the autonomous components of consumption, investment, government spending, and net export spending total $100 billion, and the MPC is 0.75, what will unplanned changes in inventory be when output is $345 billion? O-$4 billion O $4 billion O $5 billion O -$5 billion When output is higher than the intersection of the Keynesian AE and the 45- degree line, which of the following can we expect to happen? Osavings to be negative and consumption to fall O inventories to rise and output to fall O inventories to fall and output to rise consumers to expect higher incomes and consumption to risearrow_forward
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