Economics (7th Edition) (What's New in Economics)
7th Edition
ISBN: 9780134738321
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Question
Chapter 21, Problem 21.2.9PA
To determine
The calculation of saving and investment.
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Students have asked these similar questions
What do you mean by multiplier
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…
If government spending as a percent of
potential GDP had just risen from 18% to 20%,
what does the spending allocation model
predict would be happening in our economy
to consumption, investment, and net exports?
Sketch out the spending allocation diagram
and show any changes that might have
occurred.
Chapter 21 Solutions
Economics (7th Edition) (What's New in Economics)
Ch. 21 - Prob. 21.1.1RQCh. 21 - Prob. 21.1.2RQCh. 21 - Prob. 21.1.3RQCh. 21 - Prob. 21.1.4RQCh. 21 - Prob. 21.1.5PACh. 21 - Prob. 21.1.6PACh. 21 - Prob. 21.1.7PACh. 21 - Prob. 21.1.8PACh. 21 - Prob. 21.1.9PACh. 21 - Prob. 21.1.10PA
Ch. 21 - Prob. 21.1.11PACh. 21 - Prob. 21.1.12PACh. 21 - Prob. 21.1.13PACh. 21 - Prob. 21.1.14PACh. 21 - Prob. 21.2.1RQCh. 21 - Prob. 21.2.2RQCh. 21 - Prob. 21.2.3RQCh. 21 - Prob. 21.2.5PACh. 21 - Prob. 21.2.6PACh. 21 - Prob. 21.2.7PACh. 21 - Prob. 21.2.8PACh. 21 - Prob. 21.2.9PACh. 21 - Prob. 21.2.10PACh. 21 - Prob. 21.2.11PACh. 21 - Prob. 21.2.12PACh. 21 - Prob. 21.2.13PACh. 21 - Prob. 21.2.14PACh. 21 - Prob. 21.2.15PACh. 21 - Prob. 21.2.17PACh. 21 - Prob. 21.3.2RQCh. 21 - Prob. 21.3.3RQCh. 21 - Prob. 21.3.4PACh. 21 - Prob. 21.3.5PACh. 21 - Prob. 21.3.6PACh. 21 - Prob. 21.3.7PACh. 21 - Prob. 21.3.8PACh. 21 - Prob. 21.3.9PACh. 21 - Prob. 21.1RDECh. 21 - Prob. 21.2RDECh. 21 - Prob. 21.3RDECh. 21 - Prob. 21.2CTE
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Similar questions
- The following equations describe an economy: Y = C + I + G + X – M [where X=exports, M=imports] C = 150 + 0.7*(Y - T) T = 30 I = 300 G = 60 X = 140 M = 100 + 0.2*(Y - T) Which of the following statement is true? The value of the government spending multiplier is 3.33. If exports increase by 10, equilibrium Y will increase by 20. If government spending increases by 40, equilibrium Y will increase by 333. Without any changes, the equilibrium level of Y is 2167.arrow_forwardGraphically illustrate the effect of an increase in government purchases. Explain the government spending multiplier effect by using at least 200 words.arrow_forwardSuppose an economy is represented by the following equations. Consumption function C = 300 + 0.8Yd Planned investment I = 400 Government spending G = 500 Exports EX = 200 Imports IM = 0.1Yd Autonomous Taxes T = 500 Marginal Tax Rate t=0.25 Planned aggregate expenditure AE = C + I + G + (EX - IM) By using the above information calculate the equilibrium level of income for this economy and explain how multiplier changes when we have an open economyarrow_forward
- Suppose the United States economy is represented by the following equations: Z = C + I + G C = 500 + .5YD T = 600 I = 300 YD = Y - T G = 2000 Given the above variables, calculate the equilibrium level of output. Now, assume that government spending decreases from 2000 to 1900. What is the new equilibrium level of output? How much does income change as a result of this event? What is the multiplier for this economy?arrow_forwardWhat is the negative effect if multiplier increases?arrow_forwardSuppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (ADI). Suppose now that the government increases its purchases by $3.5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD) is parallel to AD₁. You can see the slope of AD, by selecting it on the following graph. PRICE LEVEL 116 114 112 110 108 106 104 102 AD 100 100 102 104 106 108 110 OUTPUT (Billions of dollars) 112 114 116 AD₂ | | AD₂ The following graph plots equilibrium in the money market at an interest rate of 3% and a quantity of money equal to $30 billion. Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. Money Supply Money…arrow_forward
- Use the information below to answer the following questions. Suppose that in China, investment is ¥190 billion, saving is ¥170 billion, government expenditure on goods and services is ¥195 billion, exports are V230 billion, and imports are *270 billion (Y is yuan, the currency of China). The government received billion in tax revenues. The government has a budget investment by and investment. equal to billion which is exerting a(n) the demand for loanable funds, which influence on the real interest ratearrow_forwardWhat is the minimum value of 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_forward
- Why would a higher tax rate lower the government purchases multiplier? What does the tax rate have to do with the government purchases multiplier?arrow_forwardSuppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (AD1). Suppose now that the government increases its purchases by $3.5 billion. of Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (ADs) is parallel to ADj. You can see the slope of 4D, by selecting it on the following graph. Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $2 billion. Based on the changes made to the money market in the previous scenario, the new interest rate causes the level of investment spending to_____ Y by______ Taking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded…arrow_forwardExplain carefully: “A change in the price level shifts the aggregate expenditures curve but not the aggregate demand curve.”arrow_forward
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