Economics: Principles, Problems, & Policies (McGraw-Hill Series in Economics) - Standalone book
20th Edition
ISBN: 9780078021756
Author: McConnell, Campbell R.; Brue, Stanley L.; Flynn Dr., Sean Masaki
Publisher: McGraw-Hill Education
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Chapter 28, Problem 10P
To determine
The MPC and Multiplier.
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LAST WORD What is Say's law? How does it relate to the view held by classical economists that the economy generally will operate at a position on its production possibilities curve? Use production possibilities analysis to demonstrate Keynes's view on this matter.
An economy has a consumption function of C = 20 + 0.75(YD), taxes = 10+0.2(Y), investment equal to 10, government expenditure equal to 15, exports equal to 15, and an import function of M = 10.
1) What is the equilibrium real GDP for this economy?
O A. 156.25
O B. 146.88
Oc. 106.25
O D. 150.50
2) What is the multiplier for a change in government spending for this economy?
O A. 3.5
O B. 2.5
O c. 3.0
O D. 4.0
ADVANCED ANALYSIS Assume that the consumption schedule for a private open economy is such that consumption C= 60 +
08Y Assume further that planned investment lo government spending G, and net exports X are independent of the level
of real GDP nd constant at lg 40, G= 0, and Xp= 10. Recall also that, in equilibrium, the real output produced () is equal to
aggregate expenditures: Y= C+lg+ G+ Xp
Instructions: Round your answers to the nearest whole number.
a. Calculate the equilibrium level of income or real GDP for this economy
S 1050
b. What happens to equilibrium Yif lg changes to 20?
950
What does this outcome reveal about the size of the multiplier?
Multiplier=
Chapter 28 Solutions
Economics: Principles, Problems, & Policies (McGraw-Hill Series in Economics) - Standalone book
Ch. 28.2 - Prob. 1QQCh. 28.2 - Prob. 2QQCh. 28.2 - Prob. 3QQCh. 28.2 - Prob. 4QQCh. 28.5 - Prob. 1QQCh. 28.5 - Prob. 2QQCh. 28.5 - Prob. 3QQCh. 28.5 - Prob. 4QQCh. 28 - Prob. 1DQCh. 28 - Prob. 2DQ
Ch. 28 - Prob. 3DQCh. 28 - Prob. 4DQCh. 28 - Prob. 5DQCh. 28 - Prob. 6DQCh. 28 - Prob. 7DQCh. 28 - Prob. 8DQCh. 28 - Prob. 9DQCh. 28 - Prob. 1RQCh. 28 - Prob. 2RQCh. 28 - Prob. 3RQCh. 28 - Prob. 4RQCh. 28 - Prob. 5RQCh. 28 - Prob. 6RQCh. 28 - Prob. 7RQCh. 28 - Prob. 8RQCh. 28 - Prob. 9RQCh. 28 - Prob. 1PCh. 28 - Prob. 2PCh. 28 - Prob. 3PCh. 28 - Prob. 4PCh. 28 - Prob. 5PCh. 28 - Prob. 6PCh. 28 - Prob. 7PCh. 28 - Prob. 8PCh. 28 - Prob. 9PCh. 28 - Prob. 10P
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Similar questions
- Suppose consumption function is specified as C= $200 + 0.75Ya planned investment is $600, net taxes are $400, and government spending totals $500 of a hypothetical economy in 2020. Find algebraically: LO 3 A. The equilibrium level of aggregate output by equating aggregate output and planned aggregate expenditure. B. Consumption when aggregate output is at the equilibrium level. C. Saving when aggregate output is at the equilibrium level. D. Establish that leakages equal injections at the equilibrium level of aggregate output.arrow_forward2. L Give Up! Suppose the Japanese economy has been experiencing slow growth. As a result, the Prime Minister, who thinks John Maynard Keynes was the greatest economist ever, has decided to increase government spending. The Prime Minister asks the head of the economic council to determine the increase in government spending necessary to bring the economy to full employment. Assume there is a GDP gap of 1 trillion yen and the marginal propensity to consume (MPC) is 0.60. What advice should the head of the economic council give the Prime Minister? O The recessionary gap is equal to 400 billion yen. O The inflationary gap is equal to 400 billion yen. O The recessionary gap is equal to 625 billion yen. O The inflationary gap is equal to 625 billion yen.arrow_forwardIf government spending rises by $100, mps = 0.2, then the GDP multiplier is O 5 O 4 O 1arrow_forward
- Which of the following statements about the income-expenditure must be true? Other things equal; O a. the multiplier for an open economy with a non-negative marginal propensity to import cannot be larger than for a closed economy. O b. the multiplier for a closed economy will be larger, the higher is the marginal tax rate. O c. the balanced budget multiplier is equal to one. O d. an increase in the marginal propensity to save will increase the size of the multiplier. O e. an increase in the marginal tax rate causes the PAE curve to become steeper.arrow_forwardWhat is the initial change in consumption if an economy's MPC is 0.75 and there is a decrease in taxes of $1 billion? O $1.75 billion O $1 billion O $1.33 billion O $0.75 billionarrow_forwardDuring 2019, a country reported that its real GDP increased by $3.0 billion. If the slope of its aggregate planned expenditure curve is 0.9, then which of the following might have led to the increase in real GDP? O a. Investment decreased by $0.3 billion. on O b. Exports increased by $0.3 billion. O c. Exports decreased by $0.3 billion. O d. Imports increased by $0.3 billion. O e. Government expenditure on goods and services increased by $3 billion.arrow_forward
- Suppose an economy has no imports (MPI, m = 0). The MPC (c) is 0.75 and real GDP is $120 billion. Businesses increase investment by $4 billion. The multiplier is in real GDP from the increase in investment is and the change billion. O a. 5; $16 O b. 4; $25 O C. 5; $25 O d. 4; $16 e. 0.75; $3arrow_forwardGiven that marginal propensity to save (MPS) is 0.5, what is the multiplier? O 2 O 4 0.5arrow_forwardRefer to the Table. The government spending multiplier in this economy is Planned Output (Income) Taves Consumption Savings Investment 1000 L100 Net Planned 200 680 120 200 200 140 200 200 1,200 200 200 200 840 160 1300 1400 1.500 920 200 200 200 LORO 200 1600 1,160 240 2. 4. 5. 10.arrow_forward
- If the multiplier is 4, what is the MPC? O 0.25 O 0.5 O 0.75 1arrow_forwardWhich of the following changes in personal income tax would lead to the smallest increase in consumption? O a. O b. a $15 000 decrease in taxes, if MPC equals 0.6 O c. a $30 000 decrease in taxes, if MPC equals 0.25 Oe. a $20 000 decrease in taxes, if MPC equals 0.5 O d. a $12 000 decrease in taxes, if MPC equals 0.75 a $10 000 decrease in taxes, if MPC equals 0.2arrow_forwardd Sites O Web Slice Gallery If real GDP is $13 trillion and planned aggregate expenditure is $13.5 trillion, inventories will be * Below their target and real GDP will increase Below their target and real GDP will decrease Above their target and real GDP will decrease Above their target and real GDP will increase If a $75 billion increase in autonomous expenditure increases equilibrium expenditure by $150 billion, then the multiplier is 0.625 O 2arrow_forward
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