Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 30, Problem 6SPPA
To determine
To find:
The quantity of real GDP demanded when the price level is at 100 and when it is 110.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents 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…
Explain the basic idea of the expenditure multiplier and the role consumers' play.
Consider an economy where the various components of expenditure follow these equations:
C = 10 + 0.8Yd
I = 500
G = 100
X = 300
М — 0.1Y
T = 0.1Y
c. Calculate the equilibrium level of GDP in this economy, highlighting what are the values of
the Keynesian multiplier and the autonomous components of expenditure.
Chapter 30 Solutions
Foundations of Economics (8th Edition)
Ch. 30 - Prob. 1SPPACh. 30 - Prob. 2SPPACh. 30 - Prob. 3SPPACh. 30 - Prob. 4SPPACh. 30 - Prob. 5SPPACh. 30 - Prob. 6SPPACh. 30 - Prob. 7SPPACh. 30 - Prob. 8SPPACh. 30 - Prob. 9SPPACh. 30 - Prob. 1IAPA
Ch. 30 - Prob. 2IAPACh. 30 - Prob. 3IAPACh. 30 - Prob. 4IAPACh. 30 - Prob. 5IAPACh. 30 - Prob. 6IAPACh. 30 - Prob. 7IAPACh. 30 - Prob. 8IAPACh. 30 - Prob. 9IAPACh. 30 - Prob. 10IAPACh. 30 - Prob. 1MCQCh. 30 - Prob. 2MCQCh. 30 - Prob. 3MCQCh. 30 - Prob. 4MCQCh. 30 - Prob. 5MCQCh. 30 - Prob. 6MCQCh. 30 - Prob. 7MCQCh. 30 - Prob. 8MCQ
Knowledge Booster
Similar questions
- What is income-expenditure equilibrium? Derive aggregate demand curve from income expenditure equilibrium when the price level is not changed.arrow_forwardGiven the information below, answer the questions that follow. C = $40 + 0.8Y I = $30 G = $40 X – M = -$10 a) What is the equilibrium GDP? Explain why $550 is not the equilibrium. b) What is the marginal propensity to consume (MPC) in this question? (Explain) c) What is the multiplier in this question and explain the significance of the multiplier? (Show all work) d) Assuming that the full employment level of output is $600, what kind of gap exists and how large is it? Explain e) If transfer payments increased by $10 and the price level did not change, what would the new equilibrium be? (Show all work) f) How would your answer to part (e) change if the price level did change?arrow_forwardWhich of the following is true of the change in the quantity of aggregate output demanded? a.The change in the quantity of aggregate output demanded depends only on how much the aggregate expenditure line shifts. b.The change in the quantity of aggregate output demanded depends only on the change in investment demand. c.The change in the quantity of aggregate output demanded depends only on the change in government spending. d.The change in the quantity of aggregate output demanded depends only on the change in interest rates.arrow_forward
- When the price level falls A) the slope of the aggregate expenditures curve changes. B) the aggregate expenditure curve remains constant. C) the aggregate expenditures curve shifts down. D) the aggregate expenditures curve shifts uparrow_forwardUsing the table below to answer the following questions. Assume all values represent trillions of dollars. Construct a graph of the Aggregate planned expenditure What is the equilibrium expenditure? Explain what happens at a real GDP of $4 trillion dollars. (Note the aggregate expenditures and the effects on inventories) What are your total autonomous expenditures? What is the marginal propensity to consume? Ignoring imports and income taxes, what is the multiplier? If investment increases by $1.5 trillion, what is the change in real GDP?arrow_forwardUse the figure to calculate the marginal propensity to consume (MPC) between point A and point B. MPC = (Enter your response as a real number rounded to two decimal places.) C Real consumption spending ($ billions) Consumption and National Income $3,750 $2,250 B $3,000 $5,000 Real national income or real GDP ($ billions) Carrow_forward
- Calculate aggregate demand if consumption expenditure is $2300 million and the investment Expenditure is $1000 millionarrow_forwardConsider the graph below: Planned Aggregate Expenditure (PAE, billions of $) 1000 900 800 700 600 500 400 300 200 100 0 100 200 300 400 500 600 700 800 1 PAE 2 PAE Y PAE₁ 900 1000 Actual Aggregate Expenditure (Output or GDP, billions of $) a. What is the expenditure multiplier in this economy? b. What is the marginal propensity to consume in this economy?arrow_forward1) If investment spending depends on GDP, this is called induced investment? T/F 2) A change in the price level will cause a shift in the expenditure schedule. T/F 3) A decrease in the price level causes a lower equilibrium quantity demanded? T/Farrow_forward
- Given the information below, answer the questions that follow. C = $40 + 0.75Y I = $30 G = $40 X – M = $10 a) What is the equilibrium GDP? Explain why $550 is not the equilibrium. b) What is the marginal propensity to consume (MPC) in this question? (Explain) c) What is the multiplier in this question and explain the significance of the multiplier?arrow_forwardThe aggregate demand function: yad =C+1+G₁ = 500+ 0.75Y is plotted on the graph to the right. The graph also shows the 45° line where aggregate output Y equals aggregate demand yad for all points. What happens to aggregate output if government spending rises by 100? The equilibrium level of output rises by $ billion. (Round your response to the nearest billion.) Consumption Expenditure, C ($ billions) 3000- 2800- 2600- 2400- 2200- 2000- 1800- 1600- 1400- 1200- 1000- 800- 600- 400- 200- 0- 0 yad =C+I+G₁ = 500 +0.75Y Y = yad 45° 400 800 1200 1600 2000 2400 2800 Disposable Income ($ billions)arrow_forwardbased on macroeconomic theory, one of the following four answers is a correct description of the concept, “expenditure multiplier”. Which one? A/ It is the idea that decreasing national income affects the equilibrium level of GDP by the same amount of that decrease in income. B/ It is the concept that increasing national income affects the equilibrium level of GDP on par with the amount of increased income. C/ The expenditure multiplier is the idea that a given change in spending leads to an equal change in the equilibrium level of GDP. D/ It is the concept that an increase in spending causes a more than proportionate change in GDP.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you