Question

Suppose GDP is 16.0 trillion and aggregate expenditures are 20.6 trillion. How does inventory change? Calculate the change in the level of inventory, if any. Provide your answer in dollars measured in trillions rounded to two decimal places. Use a negative sign "-" to indicate a decrease in inventory but do not include any other symbols, such as "$," "=," "%," or "," in your answer.

Suppose for every 10 thousand dollar increase in income, consumption increases by 9.0 thousand dollars. What is the marginal propensity to consume? Provide your answer as a percentage rounded to two decimal places. Do not include any symbols, such as "$," "=," "%," or "," in your answer.

Suppose the marginal propensity to consume (MPC) is 8.60 percent. What is the multiplier for this economy? Round your answer to two decimal places. Do not include any symbols, such as "$," "=," "%," or "," in your answer.

Suppose an economy is initially in equilibrium when GDP equals $17 trillion. Now suppose government spending increases by $0.7 trillion and that the economy's multiplier is 3. What is the new equilibrium level of GDP? Provide your answer in dollars measured in trillions round to two decimal places. Do not include any symbols, such as "$," "=," "%," or "," in your answer.

Suppose an economy is initially in equilibrium when GDP equals $19 trillion. Now suppose investment spending decreases by $0.4 trillion and that the economy's multiplier is 5. What is the new equilibrium level of GDP? Provide your answer in dollars measured in trillions round to two decimal places. Do not include any symbols, such as "$," "=," "%," or "," in your answer.

Consider the information in the table below for a hypothetical economy. What is the market equilibrium? (It may help to calculate planned aggregate expenditures to answer this question.) Provide your answer in dollars rounded to two decimal places. Do not include any symbols, such as "$," "=," "%," or "," in your answer.

Answer 1

(1)

When GDP is less than Aggregate expenditure (AE), there is an unplanned drop in inventory.

Change in inventory = GDP - AE = (16 - 20.6) trillion = -4.60 trillion

(2)

MPC = Increase in consumption / Increase in income = $9,000 / $10,000 = 0.90 = 90.00%

(3)

MPC = 8.6% = 0.086

Multiplier = 1 / (1 - MPC) = 1 / (1 - 0.086) = 1 / 0.914 = 1.09

(4)

Increase in GDP ($ Trillion) = Increase in government spending x Multiplier = 0.7 x 3 = 2.1

New level of GDP ($ Trillion) = 17 + 2.1 = 19.10

NOTE: As per Answering Policy, 1st 4 questions are answered.