EP ECONOMICS,AP EDITION-CONNECT ACCESS
20th Edition
ISBN: 9780021403455
Author: McConnell
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 29, Problem 4P
To determine
The level of real GDP of the economy.
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I need help on this question
What 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 billion
Please I need an explanation on this question.
Chapter 29 Solutions
EP ECONOMICS,AP EDITION-CONNECT ACCESS
Ch. 29.2 - Prob. 1QQCh. 29.2 - Prob. 2QQCh. 29.2 - Prob. 3QQCh. 29.2 - Prob. 4QQCh. 29.7 - Prob. 1QQCh. 29.7 - Prob. 2QQCh. 29.7 - Prob. 3QQCh. 29.7 - Prob. 4QQCh. 29 - Prob. 1DQCh. 29 - Prob. 2DQ
Ch. 29 - Prob. 3DQCh. 29 - Prob. 4DQCh. 29 - Prob. 5DQCh. 29 - Prob. 6DQCh. 29 - Prob. 7DQCh. 29 - Prob. 8DQCh. 29 - Prob. 1RQCh. 29 - Prob. 2RQCh. 29 - Prob. 3RQCh. 29 - Prob. 4RQCh. 29 - Prob. 5RQCh. 29 - Prob. 6RQCh. 29 - Prob. 7RQCh. 29 - Prob. 8RQCh. 29 - Prob. 9RQCh. 29 - Prob. 1PCh. 29 - Prob. 2PCh. 29 - Prob. 3PCh. 29 - Prob. 4PCh. 29 - Prob. 5PCh. 29 - Prob. 6PCh. 29 - Prob. 7PCh. 29 - Prob. 8PCh. 29 - Prob. 9PCh. 29 - Prob. 10P
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- 2. 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_forwardAnswer questions C and D thank youarrow_forwardChange in business inventories Compensation of employees Corporate profits Durable goods Exports Social Security taxes Transfer payments Fixed investment Government spending Imports Net interest Nondurable goods Personal taxes Rental income Services In Exhibit 5-10, compute personal income (PI). Which of the following is correct? O $7,110 billion. O $7,410 billion. $6,740 billion. $7,760 billion. $6.780 billion. 50 5,400 700 600 100 360 300 950 800 150 500 2,000 1,000 200 4,000arrow_forward
- QUESTION 10 Assuming that the "equilibrium income" is $4,000 and the "full-employment" income is $8,000, which means a recessionary gap of $4,000, how much change in government expenditures is needed to fill the gap if MPC is 0.50? O $3,000 O $4,000 O $1,000 O $2,000arrow_forwardIf government spending rises by $100, mps = 0.2, then the GDP multiplier is O 5 O 4 O 1arrow_forward8. The income-expenditure model Consider a small economy that is closed to trade, so its net exports are equal to zero. Suppose that the economy has the following consumption function, where C is consumption, Y is real GDP, I is investment, G is government purchases, and T stands for net taxes: C = 15+0.75 x (Y-T) Suppose G = $90 billion, 1 = $60 billion, and T = $20 billion. Given the consumption function and the fact that for a closed economy total expenditure can be calculated as Y=C+I+G, the equilibrium output level is equal to 5 billion. Suppose the government purchases are increased by $50 billion. The new equilibrium level of output will be equal to Based on the effect of the change in government purchases on equilibrium output, you can tell that this economy's spending multiplier is equal toarrow_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_forward8. The income-expenditure model Consider a small economy that is closed to trade, so its net exports are equal to zero. Suppose that the economy has the following consumption function, where C is consumption, Y is real GDP, I is investment, G is government purchases, and T stands for net taxes: C = 20+0.75 x (Y-T) Suppose G = $35 billion, I = $60 billion, and T = $20 billion. Given the consumption function and the fact that for a closed economy total expenditure can be calculated as Y = C + I + G, the equilibrium output level is equal to $ billion. Suppose the government purchases are increased by $50 billion. The new equilibrium level of output will be equal to Based on the effect of the change in government purchases on equilibrium output, you can tell that this economy's spending multiplier is equal toarrow_forward100 gaia 270 200 130 60 450 100 200 300 Aggregate income (Y) Figure 8.3 ?Refer to Figure 8.3. Which of the following statements is true „Aggregate saving is negative for all income levels below $400 a O For all aggregate income levels above $200, aggregate consumption is greater than aggregate income b O If consumption is the only expenditure, this economy would be in equilibrium at an aggregate income level of c O $300 Saving is negative at all income levels below $200 d O Aggregate consumption (C)arrow_forward
- I need help on this questionarrow_forwardAssume a closed economy, that taxes are fixed, and the marginal propensity to consume is equal to 0.66. What is the government spending multiplier? O 1.51 3.33 3.03 33.3arrow_forward5. Algebra of the income-expenditure model Consider a small economy that is closed to trade, so its net exports are equal to zero. Suppose that the economy has the following consumption function, where C is consumption, Y is real GDP, / is investment, G is government purchases, and T is for net taxes: C 40+0.5x (Y-T) Suppose G $265 billion, 7- $50 billion, and T $10 billion. Given the consumption function and the fact that, in a closed economy, total expenditure can be calculated as Y = C+I+G, the equilibrium output level is s billion. Suppose the government purchases are reduced by $100 billion. The new equilibrium level of output will be equal to s billion. Based on the effect of the change in government purchases on equilibrium output, you can tell that this economy's spending multiplier is equal toarrow_forward
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