Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Question
Chapter 24, Problem 8DQ
To determine
The reason for inaccurate estimate of marginal propensity to consume.
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Students have asked these similar questions
a) About Country A, what is your estimate of the country's marginal propensity to consume
(MPC) based on the following information on its GDP (Y) and the components thereof
(in billion dollars) for two past years? Show calculation.
Year 1
Year 2
c)
GDP
C
I
11200
8000
2200
12000 8500 2400
G
800
880
The next few parts are about Country B, whose government plans to cut taxes by $24 billion
as a measure to fight the current recession. The marginal propensity to consume (MPC) in
Country B is known to be 34. There will be no crowding-out effect.
e)
NX
200
220
b) What is the initial effect (in billion dollars) of the tax cut on Country B's aggregate
demand? (The "initial effect" here refers to the effect on AD after only the first round of
increased spending.)
What is the total effect of the tax cut on aggregate demand? Explain why it is different
from the initial effect.
d) How does the total effect of this $24 billion tax cut compare to the total effect of a $24
billion increase in…
Use the figure to calculate the marginal propensity to consume (MPC) between point A and point
B.
MPC =
(Enter your response as a real number rounded to two decimal places.)
C
Real consumption spending ($ billions)
Consumption and National Income
$3,750
$2,250
B
$3,000 $5,000
Real national income or real GDP ($ billions)
C
Consider an economy in which autonomous consumption, planned autonomous investment, autonomous government expenditure, autonomous taxes, and the marginal propensity to consume are given (there are no net exports).
Autonomous consumer spending = $3,000 Ip = $5,000 G = $3,000 T = $4,000
MPC = .75
(a) What is the level of C when Y = $19,000?
I need help to know how to calculate this.
Chapter 24 Solutions
Economics: Principles & Policy
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