Exploring Macroeconomics
8th Edition
ISBN: 9781544337722
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
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Question
Chapter 15, Problem 9P
To determine
To explain:
The reason behind an economy with an MPC greater that 1 cannot reach a stable equilibrium in the aggregate expenditure model.
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Students have asked these similar questions
Why can’t an economy with an MPC greater than 1 reach a stable equilibrium in the aggregate expenditure model?
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?
What are the equations for the consumption, net exports, and aggregate expenditures functions?
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Similar questions
- What is the relationship between the marginal propensity to consume (mpc) and the multiplier?arrow_forwardWill an economy with a high multiplier be more stable or less stable than an economy with a low multiplier in response to changes in the economy or in government policy?arrow_forwardIf the MPC in an economy is 0.9, a $4 billion increase in government spending will ultimately increase consumption byarrow_forward
- Calculate investment expenditure from the following data about an economy which in equilibrium: National income =$1000 Marginal propensity to save=$0.25 Autonomous consumption expenditure=$200arrow_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_forwarddetermine the equilibrium level of real GDP and the MPC.arrow_forward
- Exactly how are the MPC and MPS computed? Explain it by a numerical example.arrow_forwardWhat is the definition for the multiplier processarrow_forwardIs 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
- In the country of Krugman, a business spent $100 million building a factory. GDP eventually increased by 200 million. People spend 11% of every dollar on imports. What is the marginal propensity to consume in this economy? Write your answer as a number, between 0 and 1. If you think the answer is 0, write 0.00, not 0. Answer: Study the graph below. When will the multiplier be biggest? Select one: The multiplier will be the same size no matter what Aggregate Demand is b. The multiplier will be one no matter what aggregate demand is When aggregate demand is at AD1 d. When aggregate demand is at AD3 e When aggregate demand is at AD2 Price Level AD₁ AS e All of these are true AD₂ AD₁ GDP Why is potential output called potential, when it is not actually the most the economy can produce? Select one: a. Because potential is the most the economy can produce right now, with the technology and workers and equipment we have right now. Ob. Because economists just like to be confusing for no reason…arrow_forwardWhat would an increase in planned investment increases real GDP, but an unplanned increase in inventory investment decrease real GDP in the aggregate expenditure model?arrow_forwardAnswer 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?arrow_forward
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