1.)
If the marginal propensity to consume is 0.75 and investment spending increases by $200 billion, equilibrium GDP will increase by____.
$350 billion |
|
$150 billion |
|
$200 billion |
|
$266.7 billion |
|
$800 billion |
2.)
AE = 3000 + 0.75*RGDP. Given this equation for AE, find equilibrium GDP
$1,000 |
|
$750 |
|
$12,000 |
|
$2,250 |
3.)
The four components of aggregate planned expenditure are
the real interest rate, disposable income, wealth, and expected future income |
|
the real interest rate, consumption expenditure, investment, and government expenditures |
|
consumption expenditure, investment, government expenditures, and wealth |
|
consumption expenditure, investment, government expenditures, and net exports |
4.)
When disposable income decreases
the consumption function shifts up |
|
there is a rightward movement along the consumption function |
|
the consumption function shifts down |
|
there is a leftward movement along the consumption function |
1) Solution: $800 billion
Explanation: Multiplier = 1 / (1-MPC) = 1 / (1-0.75) = 4
Increase in equilibrium GDP = 4 * $200 billion = $800 billion
2) Solution: $12,000
Explanation: AE = 3000 + 0.75*RGDP. Given this equation for AE, find equilibrium GDP
Here Multiplier = 1 / (1-MPC) = 1 / (1-0.75) = 4
Thus equilibrium GDP = 3000 * 4 = 12,000
3) Solution: consumption expenditure, investment, government expenditures, and net exports
Explanation: The four components of planned aggregate expenditures includes investment, consumption, government expenditures, and net exports
4) Solution: there will be a leftward movement along the consumption function
Explanation: The changes in disposable income may cause movements along the consumption function
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