Question
3. Suppose equilibrium GDP is 10,000 and the MPC = .6. a. What effect will a...
3. Suppose equilibrium GDP is 10,000 and the MPC = .6.
a. What effect will a $1,000 increase in planned investment have on GDP?
b. What effect will a $1,000 increase in planned investment have on consumption? (Hint; remember that consumption and income are related).
Homework Answers
Answer #1
a.
Multiplier = 1 / 1 - MPC = 1 / 0.4 = 2.5
Multiplier, m = 
Y /
I
2.5 =
Y / 1000
Y
= 2,500
So, the GDP will increase by $2,500
b
We know that,
C = MPC*Y
C
= 0.6*2,500
C
= 1,500
So, the consumption will increase by $1,500
Not the answer you're looking for?
Similar Questions
If autonomous consumption is $1000, the MPC = 0.75, net taxes = $500, investment spending =...
If autonomous consumption is $1000, the MPC = 0.75, net taxes =
$500, investment spending = $800, and govt purchases = $500, and NX
= $0, what is equilibrium GDP?
Question 1 options:
$1,800
$1,925
$2,566.70
$7,200
$7,700
Question 2 (1 point)
The focus of the short-run macro model is on the role of
Question 2 options:
spending in explaining economic fluctuations
labor in explaining economic fluctuations
financial markets in explaining economic fluctuations
output in explaining economic fluctuations
resources in...
Calculate GDP loss if equilibrium level of GDP is $8,000, unemployment rate 8.8%, and the MPC...
Calculate GDP loss if equilibrium level of GDP is $8,000,
unemployment rate 8.8%, and the MPC is 0.80. Hint: (Use Okun's law
to calculate GDP loss)
a) How much money should the government spend to eliminate this
GDP loss?
b) Calculate the tax cut needed to eliminate this GDP loss.
Assume that initially G is $300 and equilibrium real GDP is
$5000. If the multiplier is 5, what would be the new equilibrium
level of GDP if Government expenditures increase...
The MPC for a closed economy is 0.75. Autonomous consumption is $500, investment is $300, and...
The MPC for a closed economy is 0.75. Autonomous
consumption is $500, investment is $300, and government spending is
$400.
a) What is the equilibrium
level of real GDP?
b) If business increases
planned investment expenditure by 300 to 400, what is the new
equilibrium real GDP?
c) What is the slope of the AE
function in this economy and the value of the
multiplier?
Suppose that the MPC is 0.75 and that this economy has lump sum taxes. 1. What...
Suppose that the MPC is 0.75 and that this economy has lump sum
taxes.
1. What is the spending multiplier?
2. What is the tax multiplier?
3. What will happen to GDP if taxes increase by 1,200?
4. What would to GDP if spending decreases by 1,200?
5. What decreases in taxes would have the same effect on the
economy as the increase in G in (d)?
6. Suppose that both income and taxes increase by 2,000. What is
the...
Suppose that you have the following information for an economy: Marginal propensity to consume - MPC...
Suppose that you have the following information for an
economy:
Marginal propensity to consume - MPC
0.80
Autonomous consumption - A
$500
Planned investment - PI
$600
Net exports - NX
-$400
Government spending - G
$300
You will need this information for the questions that
follow.
Part 1:
When real GDP is equal to $4,500, aggregate expenditure is equal
to $ .
Part 2:
When real GDP is equal to $5,000, aggregate expenditure is equal
to $ .
Part 3:
When real GDP...
An economy has GDP of 10,000; consumption of 6,000; government purchases of 1,000 and investment of...
An economy has GDP of 10,000; consumption of 6,000; government
purchases of 1,000 and investment of 2,500.
Net Exports = _______________; and Net Capital Outflow =
_____________
What is the effect of an increase in the government purchases
on
Net Exports (Increase or Decrease) and
on Net Capital Outflow (Increase or Decrease)
An economy has GDP of 10,000; consumption of 6,000; government purchases of 1,000 and investment of...
An economy has GDP of 10,000;
consumption of 6,000; government purchases of 1,000 and investment
of 2,500.
Net Exports = _______________; and Net Capital Outflow =
_____________
What is the effect of an increase in the government purchases
on
Net Exports (Increase or Decrease) and
on Net Capital Outflow (Increase or Decrease)
1. Calculate GDP loss if equilibrium level of GDP is $10,000, unemployment rate 9.8%, and the...
1. Calculate GDP loss if equilibrium level of GDP is
$10,000, unemployment rate 9.8%, and the MPC is 0.75.
GDP loss:
a) How much money should the government spend to
eliminate this GDP loss?
b) Calculate the tax cut needed to eliminate this GDP
loss.
Suppose disposable income is $1,000 when the average propensity to consume is 0.75. Then Group of...
Suppose disposable income is $1,000 when the average propensity
to consume is 0.75. Then
Group of answer choices
the marginal propensity to consume must be 0.75.
the slope of the consumption schedule must be 0.25
the level of saving is $250.
the average propensity to save must be 0.2
If the MPC is .70 and investment increases by $6 billion, the
equilibrium GDP will:
Group of answer choices
increase by $10 billion.
increase by $20 billion.
increase by $42 billion....
In each of the following scenarios, what is the overall effect on equilibrium output? a. Business...
In each of the following scenarios, what is the overall effect
on equilibrium output?
a. Business optimism rises and, as a result, planned investment
spending rises by $5 million. The marginal propensity to consume is
0.80. We can expect equilibrium output to (Click to
select) increase decrease by $
million?
b. Household wealth rises and, as a result, autonomous
consumption spending rises by $4 million. The marginal propensity
to consume is 0.60. We can expect equilibrium output
to (Click to
select) increase decrease by $
million?
c. Taxes...
ADVERTISEMENT
Need Online Homework Help?
Get Answers For Free
Most questions answered within 1 hours.
ADVERTISEMENT
Active Questions
asked 14 minutes ago
asked 17 minutes ago
asked 21 minutes ago
asked 39 minutes ago
asked 42 minutes ago
asked 51 minutes ago
asked 54 minutes ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago