Econ Macro (book Only)
6th Edition
ISBN: 9781337408745
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 9, Problem 13P
Sub-Part
A
To determine
Size and direction of any changes of the aggregate expenditure line, real GDP demanded and the aggregate
B
To determine
Size and direction of any changes of the aggregate expenditure line, real GDP demanded and the aggregate demand curve when the Spending falls by $5 billion at each income level.
C
To determine
Size and direction of any changes of the aggregate expenditure line, real GDP demanded and the aggregate demand curve when the Spending rises by $20 billion at each income level.
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Students have asked these similar questions
(Changes in Government Purchases) Assume that government purchases decrease by $10 billion, with other factors held constant, including the price level. Calculate the change in the level of real GDP demanded for each of the following values of the MPC. Then, calculate the change if the government, instead of reducing its purchases, increased autonomous net taxes by $10 billion.
0.9
0.8
0.75
0.6
(Multipliers) Suppose investment, in addition to having an autonomous component, also has a component that varies directly with the level of real GDP. How would this affect the size of the spending multiplier?
6. Aggregate expenditure and income
Suppose the following table shows consumption (C), investment (I), government purchases (G), and net exports (NX) in a hypothetical economy for
various levels of real GDP. Assume that the price level remains unchanged at all levels of real GDP.
Real GDP
с
G
NX
(Billions of dollars) (Billions of dollars) (Billions of dollars)
(Billions of dollars) (Billions of dollars)
500
250
250
200
-150
600
325
250
200
-150
700
400
250
200
-150
800
475
250
200
-150
900
550
250
200
-150
The following graph shows real GDP on the horizontal axis and aggregate expenditure on the vertical axis.
Use the orange line (square symbol) to plot a 45-degree line on this graph. Then use the blue points (circle symbols) to plot the aggregate
expenditure line for this economy.
Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.
AGGREGATE EXPENDITURES (Billions of dollars)
1000
900
800
700
600
500
400
400…
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Similar questions
- 9. Deriving aggregate demand from the income-expenditure model The following graph shows three planned expenditure lines for an economy at three different price levels. PE120 corresponds to the price level of 120; PE100 corresponds to the price level of 100; PE140 corresponds to the price level of 140. The black line (which starts in the bottom left corner) is a 45-degree line illustrating the set of points for which real income and planned expenditure are equal. 800 PE, (P = 100) 700 PE, (P =120) 600 PE, (P =140) Slope: 0.5 500 Y-Intercept: 200 400 300 100 100 200 300 400 500 600 700 800 REAL INCOME (Billions of dollars) The level of equilibrium output at a price level of 100, is On the following graph, plot the aggregate demand curve that results from varying the price level from 100 to 120 to 140, holding all else equal. Hint: Real income and the quantity of output are equivalent. For example, a real income of $100 billion is the same as a quantity of output of $100 billion. PLANNED…arrow_forward(Simple Spending Multiplier) For each of the following values for the MPC, determine the size of the simple spending multiplier and the total change in real GDP demanded following a $10 billion decrease in spending: a. MPC = 0.9 B. MPC = 0.75 C. MPC = 0.6arrow_forward4. Study Questions and Problems #4 Real GDP (Y) and aggregate expenditures (AE) are shown for an economy in the first two columns of the following table. Suppose that economic forecasters predict government spending to increase in the near future from G=$1 trillion to G=$1.25 trillion. Recalculate the value of aggregate expenditures given the new value of G=$1.25 trillion. Enter those values to the second decimal place in the third column of the table. Real GDP (Y) (Trillions of dollars per year) 0 1 2 3 4 5 6 7 8 9 10 G=$1 trillion (Trillions of dollars per year) 1.25 2.00 2.75 3.50 4.25 Aggregate Expenditures 5.00 5.75 6.50 7.25 8.00 8.75 G=$1.25 trillion (Trillions of dollars per year) 1.56 2.5 3.44 4.38 5.31 6.25 7.19 8.13 9.06 10 10.94 The black line on the following graph represents the 45-degree line where real GDP equals aggregate expenditures. Use the blue points (circle symbol) to plot the aggregate expenditures line for this economy when G-$1.25 trillion. Line segments will…arrow_forward
- 3. (Table: Aggregate Spending) Use Table: Aggregate Spending. Suppose the economy has no government spending and no foreign trade. With no taxes or transfers, real GDP equals disposable income (YD). Table: Aggregate Spending Real GDP YD IPlanned $0 $0 100 600 500 500 500 600 1,000 1,000 900 600 1,500 1,500 1,300 600 2,000 2,000 1,700 600 2,500 2,500 2,100 600 3,000 3,000 2,500 600 3,500 3,500 2,900 600 4,000 4,000 3,300 600 с. If real GDP is $2,500, what kind of adjustment would you expect firms to make in the future?arrow_forward3. (3.5 points) Assume that when' aggregate income (ie, aggregate output, or Y) increases by $120 million in the country of Intrometida aggregate consumption (C) there increases by $24 million. a. Using the pieces of information just given, find the marginal propensity to consume (MPC) for the economy of Intrometidar What is the marginal propensity to save (MPS) Show your work. Express your answers as either fractions or the appropriate decimals. MPC MPSarrow_forward1. (a) The following equations describe an economy: C-100+ 0.75Yd I-50-25r T-G-50 Where C is aggregate consumption, Y is disposable income, I is aggregate investment. I is taxes, G is government purchases and r is the rate of interest. Derive the IS curve for the economy. Show the area of excess demand and excess supply in the goods market. (b) Draw the graph and explain the derivation of IS curve. 2. (a) Given the following data about the monetary sector of the economy: Ma -0.4Y-80r M₁ - 1200 million Where, Ma is demand for money, Y is the level of income, r is the rate of interest and M, is the supply of money. Derive the equation for LM curve and give the economic interpretation of this curve. Show the excess demand and excess supply in the money market. (b) Draw the graph and explain the derivation of LM curve. 3. Consider the following economy: C-100+ 0.8Yd I-50-25, G-T-50 M' P -200 M₁-Y-25r 1. Calculate the IS and LM curves. 2. Calculate the equilibrium levels of output (national…arrow_forward
- 2. Nonprice-level determinants of aggregate demand The following graph shows an increase in aggregate demand (AD) in a hypothetical country. Specifically, aggregate demand shifts to the right from AD1 to AD2, causing the quantity of output demanded to rise at all price levels. For example, at a price level of 140, output is now $400 billion, where previously it was $300 billion. PRICE LEVEL (CPI) 170 160 150 140 130 120 110 + 100 90 0 100 04 Taxes 300, 140 200 300 400 500 600 700 800 REAL GDP (Billions of dollars) AD2 The following table lists several determinants of aggregate demand. Consumer Expectations AD₁ Complete the table by indicating the change in each determinant necessary to increase aggregate demand. Change Needed to Increase AD Expected Rate of Return on Investment Incomes in Other Countries ?arrow_forward4. Planned expenditure and income The following table shows consumption (C), investment spending (I), and government purchases (G), in a hypothetical economy for various levels of income. Also assume that there is an income tax rate of 25%, that base consumption is $100 billion, and that the MPC is 0.333, or 1/3. This economy is closed, with no international trade, therefore net exports are equal to zero and should not be considered. Use the given information to fill in disposable income, consumption, and planned expenditures in the following table. Income: Real Disposable (After Tax) Planned GDP Income C I, G Expenditures (Billions of (Billions of dollars) (Billions of (Billions of (Billions of (Billions of dollars) dollars) dollars) dollars) dollars) 100 50 150 100 50 150 200 50 150 300 50 150 400 50 150 500 50 150arrow_forwardQuestion 22 (Figure: Aggregate Expenditures Curve I) Use Figure: Aggregate Expenditures Curve 1. The slope of the aggregate spending line in this figure is: Aggregate expenditures (per year) 45-degree line AE $800 $1,600 Real GDP (per year) 0.25. O 0.5. 1.0. 45 degrees.arrow_forward
- APPLICATION: PROBLEM-SOLVING 8.1 (SHOW COMPLETE SOLUTIONS) Fill in the blanks in the table below. Assume that the MPC is constant over everyone in the economy. Support your answer with computations. Change in government spending Spending Change in MPC multiplier income $100 2.5 -$250 0.5 $200 0.2 $1,000 Based on the condition and your calculations, what is your conclusion on the marginal propensity to consumer (МPC)?arrow_forward7. Deriving and exploring the total expenditures curve The following graph shows total production (TP) and the level of Natural Real GDP (NRGDP) for a hypothetical economy. When Real GDP is $450 billion, consumption is $375 billion, government purchases are $30 billion, and investment is $70 billion. When Real GDP is $500 billion, consumption is $400 billion, government purchases are $30 billion, and investment is $70 billion. Use the blue line (circle symbol) to plot the economy's total expenditure function within a simplified Keynesian framework. TOTAL EXPENDITURE (Billions of dollars) 600 575 550 525 500 475 450 425 400 400 TP O 425 X NRGDP O 450 475 500 525 REAL GDP (Billions of dollars) 550 575 600 TE (?arrow_forwardFigure 3-3 45° Planned Expenditure 200 + 0.75Y 45 Income (Y) In the figure above: a. Find the equilibrium GDP. What happens to the left of that equilibrium? What happens to the right? b. When income is $1,000, what is the unplanned inventory? c. What is the GDP multiplier? d. What is the tax multiplier? e. How much should government expenditures increase if the government wants to increase GDP from the equilibrium level found at point a) to 1,000? f. How much should taxes decrease if the government wants to increase GDP from the equilibrium level found at point a) to 1,000? Planned Expenditurearrow_forward
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