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 23, Problem 23.3.12PA
Subpart (a):
To determine
To determine: The marginal propensity to consume.
Subpart (b):
To determine
The value of equilibrium GDP.
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Students have asked these similar questions
Q3.
Real GDP
Consumption
Planned Investment
Government Purchases
Net Exports
$5,000
$4,500
$500
$325
-125
6,000
5,300
$500
$325
-125
7,000
6,100
$500
$325
-125
8,000
6,900
$500
$325
-125
Answer the questions based on the table below. The values are in millions of dollars.
What is the equilibrium level of real GDP?
What is the MPC?
If potential GDP is $7,000 million, is the economy at full employment? If not, what is the condition of the economy?
If the economy is not at full employment, by how much should government spending increase so that the economy can move to the full employment level of GDP?
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02:59:16
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References
a. Fill in the missing numbers (gray-shaded cells) in the table.
Instructions: In the table, enter your answers for consumption as a whole number. Round your answers for APC and APS to 4 decimal
places. Round your answers for MPC and MPS to 1 decimal place. If you are entering any negative numbers be sure to include a
negative sign (-) in front of those numbers.
Level of Output and
Income (GDPDI)
$240
260
280
300
320
340
360
380
400
Consumption
Saving
$-4
0
4
8
12
16
20
24
28
APC
APS
MPC
MPS
On the following graph, use the blue line (circle symbol) to plot this economy's consumption function based on these data.
?
CONSUMPTION (Billions of dollars)
700
600
500
400
300
200
100
0
-100
0
100
200
300
400
500
600
DISPOSABLE INCOME (Billions of dollars)
700
800
From the preceding data, you know that the level of savings in the economy last year was $
economy is
billion and the marginal propensity to save in this
Suppose that this year, disposable income is projected to be $500 billion. Based on your analysis, you would expect consumption to be $
billion and savings to be $
billion.
Chapter 23 Solutions
Economics (7th Edition) (What's New in Economics)
Ch. 23.A - Prob. 1RQCh. 23.A - Prob. 2RQCh. 23.A - Prob. 3RQCh. 23.A - Prob. 4RQCh. 23 - Prob. 23.1.1RQCh. 23 - Prob. 23.1.2RQCh. 23 - Prob. 23.1.3RQCh. 23 - Prob. 23.1.4PACh. 23 - Prob. 23.1.5PACh. 23 - Prob. 23.1.6PA
Ch. 23 - Prob. 23.1.7PACh. 23 - Prob. 23.1.8PACh. 23 - Prob. 23.1.9PACh. 23 - Prob. 23.2.1RQCh. 23 - Prob. 23.2.2RQCh. 23 - Prob. 23.2.3RQCh. 23 - Prob. 23.2.4RQCh. 23 - Prob. 23.2.5RQCh. 23 - Prob. 23.2.6PACh. 23 - Prob. 23.2.7PACh. 23 - Prob. 23.2.8PACh. 23 - Prob. 23.2.9PACh. 23 - Prob. 23.2.10PACh. 23 - Prob. 23.2.11PACh. 23 - Prob. 23.2.12PACh. 23 - Prob. 23.2.13PACh. 23 - Prob. 23.2.14PACh. 23 - Prob. 23.2.15PACh. 23 - Prob. 23.3.1RQCh. 23 - Prob. 23.3.2RQCh. 23 - Prob. 23.3.3RQCh. 23 - Prob. 23.3.4RQCh. 23 - Prob. 23.3.5RQCh. 23 - Prob. 23.3.6PACh. 23 - Prob. 23.3.7PACh. 23 - Prob. 23.3.8PACh. 23 - Prob. 23.3.9PACh. 23 - Prob. 23.3.10PACh. 23 - Prob. 23.3.12PACh. 23 - Prob. 23.4.1RQCh. 23 - Prob. 23.4.2RQCh. 23 - Prob. 23.4.3RQCh. 23 - Prob. 23.4.4PACh. 23 - Prob. 23.4.5PACh. 23 - Prob. 23.4.6PACh. 23 - Prob. 23.4.7PACh. 23 - Prob. 23.4.8PACh. 23 - Prob. 23.4.9PACh. 23 - Prob. 23.4.10PACh. 23 - Prob. 23.4.11PACh. 23 - Prob. 23.4.12PACh. 23 - Prob. 23.4.13PACh. 23 - Prob. 23.4.14PACh. 23 - Prob. 23.5.1RQCh. 23 - Prob. 23.5.2RQCh. 23 - Prob. 23.5.3RQCh. 23 - Prob. 23.5.4PACh. 23 - Prob. 23.5.5PACh. 23 - Prob. 23.5.6PACh. 23 - Prob. 23.1RDECh. 23 - Prob. 23.2CTECh. 23 - Prob. 23.3CTE
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- 11 pints eBook Print References Using the graph as a reference, suppose an economy's aggregate consumption function is C= $300 billion +0.50 YD. 1,000 Consumption ($ billions per year) 900 800 700 600 500 400 300 200 100 0 45° 20000 100 100 Disposable Income ($ billions per year) 50000 billion 700 billion 800 1,100 1,000 900 Instructions: Enter your responses as a whole number. a. At what level of income do households begin to save? $ b. By how much does consumption increase when disposable income rises $100 billion beyond the level of income from part a?arrow_forwardConsider 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.arrow_forwardIn an economy of a specific country, the economy's consumption schedule is given in the table below. GDP=DI C 6500 6680 6800 6840 7000 7000 7200 7160 7400 7320 7600 7480 7800 7640 8000 7800 Use the above table information to answer the questions of part 1: Part 1: 1. If disposable income were $7800, how much would be saved? 2. What is the "break-even" level of disposable income? 3. What is this economy's marginal propensity to consume? 4. What is the average propensity to consume when disposable income is $7000? When disposable income is $8000? Part 2: 5. Suppose a $100 increase in desired investment spending ultimately results in a $300 increase in real GDP. What is the size of the multiplier? 6. If the MPS is .4, what is the multiplier? 7. If the MPC is .75, what is the multiplier? 8. Suppose investment spending initially increases by $50 billion in an economy whose MPC is 2/3. By how much will this ultimately change real GDP?arrow_forward
- 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_forwardUse the information in the table to answer the following questions. All numbers are in billions of 2012 dollars. Planned Investment (1) Real GDP (Y) $14,000 $15,000 $16,000 $17,000 $18,000 The equilibrium level of GDP is $ The MPC is billion. Consumption (C) $11,000 $11,750 $12,500 $13,250 $14,000 $1,500 $1,500 $1,500 $1,500 $1,500 (enter your response to two decimal places). Suppose that net exports increase by $400 billion. Using the multiplier formula, determine the new level of GDP. A $400 billion increase in net exports leads to a change in spending of $ billion, so the new level of GDP will be $ billion. Government Purchases (G) $2,500 $2,500 $2,500 $2,500 $2,500 Net Exports (NX) - $500 - $500 - $500 - $500 - $500arrow_forwardUse the following table. which represents the aggregate consumption function? Table: Individual and Aggregate Consumption Functions Current Consumer Spending Andy Fred Mark Disposable Income SO 1,000 $150 $100 $200 950 800 1,100 C = 450 + 0.7YD C = 150 + 0.9YD C= 250 + 0.8YD C = 450 + 0.8YDarrow_forward
- Now suppose that disposable income suddenly and unexpectedly decreases. On the following graph, shift either the C curve or the initial point on the C curve to show the impact of a fall in disposable income. Real Consumption Spending (Billions of dollars) □ Disposable Income (Billions of dollars) 0 C Barrow_forwardSilesia You are provided with the following information about an imaginary economy called Silesia. Use the information provided in the table to answer the questions below. Government expenditure 400 Exports 250 Autonomous imports 50 Autonomous consumption 150 Investment Expenditure 300 Full-employment output 2040 Marginal propensity to consume 0.75 Marginal propensity to import 0.15 Source: Bester, N. 2017. Tax rate 0.25 5.1 Derive and calculate the consumption function for the data provided. Show all formulas and calculations used. 5.2 Calculate autonomous spending. Show all formulas and calculations used 5.3 Calculate the multiplier. Show all formulas and calculations used. Round off your final answer to 1 decimal.arrow_forwardSuppose that disposable income, consumption, and saving in some country are $400 billion, $350 billion, and $50 billion, respectively. Next, assume that disposable income increases by $40 billion, consumption rises by $28 billion, and saving goes up by $12 billion. Instructions: In part a, round your answers to 2 decimal places. In part b, round your answers to 3 decimal places. a. What is the economy's MPC? MPC = What is its MPS? MPS = b. What was the APC before the increase in disposable income? APC before = What was the APC after the increase? APC after =arrow_forward
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