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).

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

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

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
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 that an initial $10 billion increase in investment spending expands GDP by $10 billion in...
Suppose that an initial $10 billion increase in investment spending expands GDP by $10 billion in the first round of the multiplier process. Also assume that GDP and consumption both rise by $6 billion in the second round of the process. Instructions: Round your answers to 1 decimal place. a. What is the MPC in this economy? b. What is the size of the multiplier? c. If, instead, GDP and consumption both rose by $8 billion in the second round,...
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....
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT