Essentials of Economics (MindTap Course List)
8th Edition
ISBN: 9781337091992
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 24, Problem 4CQQ
To determine
Multiplier effect.
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Determine whether each of the following, other factors held constant, would, in the short run, lead to an increase, a decrease, or no change in the level of real GDP demanded:
a. A decrease in government purchases
b. An increase in net taxes
c. A reduction in transfer payments
d. A decrease in the marginal propensity to consume.
If investment increases by $50 billion, by how much will aggregate demand change?
Aggregate demand will _______.
A.
increase by less than $50 billion because there will be fewer goods and services produced for consumption expenditure
B.
increase by more than $50 billion because the increase in aggregate income induces an increase in consumption expenditure
C.
probably decrease by $50 billion, but it depends on the change in aggregate supply
D.
increase by exactly $50 billion because investment is a component of aggregate demand
As interest rates rise, the effect on aggregate demand is to
Select one:
a. increase firm borrowing and investment spending.
b. increase only firm borrowing.
c. reduce consumer borrowing and consumption spending.
d. increase consumer borrowing and saving.
Chapter 24 Solutions
Essentials of Economics (MindTap Course List)
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- What is the effect of an increase in investment? When investment increases, A. aggregate demand increases and income increases. The increase in income induçes an increase in consumption expenditure so aggregate demand increases by more than the initial increase in investment B. aggregate demand increases and aggregate supply increases C. aggregate demand increases by an amount equal to the increase in investment O D. aggregate supply increases. The increase in aggregate supply is greater than the increase in investment because capital increases, which increases potential GDP Click to select your answer. MacBook Air DII F11 F12 888 F10 F9 吕0 F7 F8 F6 F5 F4 esc F2 F3 F1 # $ delete @ 7 8 1 2 3 4 P Y Q W E R %3D tab つ K S D F G A aps lock M V B ootion * 00 I くOarrow_forwardThe tax rate is 0.4. The marginal propensity to import is 0.5 . When real GDP increases from $20,000 to $20,198, consumption increases from $18,000 to $18,050. What is the marginal propensity to consume?arrow_forwardd. Now G assumes its original value of G = 800. Congress decreases the tax rate from (1/2) to (1/4). i) Use a model to sketch the effect of the decrease in the tax rate when the price level is held constant. ii) What is the new marginal propensity to consume? iii) Calculate the new equilibrium level of income.arrow_forward
- Consider a tax cut which affects not only consumer disposable income, but also after-tax earnings from labor supplied to labor markets and from financial assets acquired through saving. In the long run we would expect this tax cut to A decrease the level of real GDP. B decrease the price level. C increase both the price level and the level of real GDP. D decrease the price level and increase the level of real GDP.arrow_forwardCalculate the total change in aggregate spending if investment decreases by $250 billion and the marginal propensity to consume is 0.9. Instructions: Enter your response as a whole number. Aggregate demand decreases by $ ________billion.arrow_forwardCONSUMPTION (Billions of dollars) ng.cengage.com Lesson 6 Discussion Forum ART-1035-U01 - Introduction to Art Mind Tap - Cengage Learning CENGAGE MINDTAP Q Search this course Aplia Homework: Aggregate Expenditure and Aggregate Demand Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.50. That is, if disposable income increases by $1, consumption increases by 50¢. Suppose further that last year disposable income in the economy was $350 billion and consumption was $300 billion. Z-V On the following graph, use the blue line (circle symbol) to plot this economy's consumption function based on these data. E 009 oSuog DISPOSABLE INCOME (Billions of dollars) billion and the marginalbropensity to save in this From the preceding data, you know that the level of saving in the economy last year was economy is M-cBook Al IN F8 F12 F11 F6 888 dele %23 24 8. 6. 9. 7. 3. 4. P. R. H.arrow_forward
- One way that the government can increase aggregate demand is by: A. reducing income taxes. B. increasing the interest rates. C. reducing government spending. D. increasing business taxes.arrow_forwardWhich of the following would be most likely to increase consumption spending? Selected answer will be automatically saved. For keyboard navigation, press up/down arrow keys to select an answer. a A reduction in consumer credit card debt b A drop in stock prices c A higher interest rate d The expectation of lower future pricesarrow_forwardA drop in the price level will have what effect in the aggregate demand model and the income-expenditure model?A.decreases aggregate demand and planned expenditures.B.increases aggregate demand, but decreases planned expenditures.C.decreases aggregate quantity demanded, but increases planned expenditures.D.increases aggregate quantity demanded and planned expenditures.arrow_forward
- Assume that the marginal propensity to consume is 0.6 and potential output is $1000 billion. If real GDP is $1100 billion: Select one: a. there is an inflationary gap. b. the economy is in long-run equilibrium. c. there is a recessionary gap. d. government transfers should be decreased.arrow_forwardSuppose that an economy is in equilibrium at a real GDP of $10 trillion at a price level of 100. An increase in autonomous expenditures of $0.30 trillion takes place. The current multiplier is 10. If the short-run aggregate supply curve is horizontal, the new equilibrium value of real GDP will be A. $0.30 billion. B. $3.00 trillion. C. $13.00 trillion. D. $10.30 trillion. Suppose that an economy is in equilibrium at a real GDP of $10 trillion at a price level of 100. The short-run aggregate supply curve is upward-sloping and there is an increase in autonomous expenditures of $0.30 trillion. This increase in expenditures enabled the real GDP to increase to $10.50 trillion. The change in the price level has changed the multiplier to A. 1.667. B. 9.70. C. 8.58. D. 5.722.arrow_forward1.The marginal propensity to consume in this economy is 2.The equilibrium level of output in this economy isarrow_forward
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