PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Question
Chapter 13, Problem 13.4CC
To determine
Graphically, explain the change in output gap as it rises by 10 units.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Suppose that a company wishes to predict sales volume based on the amount of advertising expenditures. The sales manager thinks that sales volume and advertising
expenditures are modeled according to the following linear equation. Both sales volume and advertising expenditures are in thousands of dollars.
Estimated Sales Volume = 48.06 + 0.53 (Advertising Expenditures)
If the company has a target sales volume of $100,000, how much should the sales manager allocate for advertising in the budget? Round your answer to the nearest
dollar.
Consider the following intertemporal consumption problem with one good and two periods. The quantity of the good consumed in period 1 and period 2 are q1 and q2. The price of each unit of the good is $1 in both periods. The consumer’s income is I1=10 in the first period and I2=12 in the second period. The consumer can borrow or save money at the interest rate of 50%, that is, r=0.50. The consumer’s utility function is u(q1,q2)= q1q2.
The optimal choice of q1 is
a. 9
b. 10
c. 11
And the consumer will:
d. borrow 1
e. save 1
f. borrow 2
g, save 0
You are given the following data concerning Freedonia, a new republic.
1) Consumption is 200 when income is zero and the marginal propensity to consume is 0.6 out of every dollar increase in income
2) Investment function: I = 200
3) AE ≡ C + I
4) AE = Y
Derive the savings function?
Graph equations 3) and 4) and solve for equilibrium income (Y).
Suppose equation 2) is changed to I = 150. What is the new equilibrium level of income (Y)? By how much does the $50 decrease in planned investment change equilibrium income? What is the value of the tax multiplier?
Chapter 13 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
Knowledge Booster
Similar questions
- You are given the following data concerning Freedonia, a new republic. 1) Consumption is 200 when income is zero and the marginal propensity to consume is 0.6 out of every dollar increase in income 2) Investment function: I = 200 3) AE ≡ C + I 4) AE = Y Questions A. Derive the savings function? B. Graph equations 3) and 4) and solve for equilibrium income (Y). C. Suppose equation 2) is changed to I = 150. What is the new equilibrium level of income (Y)? By how much does the $50 decrease in planned investment change equilibrium income? What is the value of the tax multiplier?arrow_forwardEquation for consumption is C=40/(0.8Y) where Y= yearly income = $400. A) what is the level of consumption B) what is the average propensity to consumearrow_forwardTom lives in two periods. In the first period, his income is fixed at $50,000; in the second, he gets a 8% raise in his income. He can borrow but cannot save at the market interest rate of 5 percent. Assume the next period consumption is put on the vertical axis). The vertical intercept of his intertemporal budget constraint is: dollars.arrow_forward
- 6. Given the savings function S = (3Y2 +2Y)/ ( Y-1) a) Write the consumption function. b) Find the equilibrium level of income, if the consumption is 100. Please answer both subparts. I will really upvotearrow_forwardUse the graphs to illustrate the effect of a decrease in consumer income expectations on the consumption (C) function and the savings (S) function. Real consumption 500 450 400 350 300 250 200 150 100 50 0 0 50 C = DI с 100 150 200 250 300 350 400 450 500 Real disposable income (DI) Real savings 500 450 400 350 300 250 200 150 100 50 0 -50 -100 -150 0 50 100 150 200 250 300 350 Real disposable income (DI) S 400 450 500arrow_forwardSuppose that c= a+by, where c= consumption, a = consumption at zero income, b = the slope of the consumption from function, and y = income, a) are c and y positively related or are they negatively related? b) If graphed, would the curve of this equation slope upward or downward? c) What is the value of c if a = 10, b = 50 and y = 200? d) what is the value of y if c = 100, a = 10 and b = 25?arrow_forward
- Assume that Kelly is a life cycle consumer and receives incomes of 20, 30, 45 and 0 in her four period life. What is Kelly's marginal propensity to consume out of her new wealth (AC/AW) in the following situations: [Hint: Let AC be the the change in consumption compared to what she would have done before the inheritance changed her wealth AW]. 19. In period 2 following an unexpected inheritance of 10: (a) 0.25; (b) 0.33; (c) 0.75; (d) 1.0; 20. In period 3 following an expected lump sum payment from her trust fund of 15: (a) 0.33; (b) 0.75; (c) 0.45; (d) 0.50; 21. What is her desired optimal consumption in period 3 with the anticipated trust fund gift of 15: (a) 20; (b) 30; (c) 27.50; (d) 22.50; 22. In what period of her working life (Y > 0) would her marginal propensity to consume out of an unexpected inheritance of 10 be the highest: (a) 1; (b) 2; (c) 3; (d) 4;arrow_forwardWhat are the determinants for an individual demand? Derive with the help of indifferencecurves and the budget constraint the optimal consumption plan. How do you transfer theoptimal consumption plan into an individual demand function? (use graphs)arrow_forwardWhich of the following statements is correct? a) From an additional dollar of income the least consumers can spend is 1 cent. b) If from an additional dollar of income there is 0 additional consumption, then MPC is 1. c) If MPC is zero, the multiplier is 1. d) One is a multiplier.arrow_forward
- Consider the following demand components: Consumption described as a following: 100 million USD as an autonomous level of consumption plus 95% of disposable income spends on consumption. I = 30 G=15 T= 20 (a)Assuming goods market equilibrium, show equilibrium level of output in this economy. (b)How much output increase, if G increase from 15 to 20, show your calculations.arrow_forwardAnother important aspect of Tourism Economics is the multiplier effect, which refers to the additional economic activity generated by tourism spending. When tourists spend money in a destination, it circulates through the local economy, benefiting not just the direct recipients of this spending but also other businesses and their employees. For example, tourists spending money in local restaurants support not only the restaurant staff but also local suppliers and their workers. The multiplier effect in Tourism Economics is essential because it: A) Reduces overall economic activity B) Only benefits the tourism sector C) Generates additional economic activity beyond the initial spending D) Leads to economic stagnationarrow_forwardThe autonomous consumption expenditures and autonomous investment expenditures in an economy are $250 and $350, respectively. It is also observed that individuals spend 90% of their additional income on consumption. Using the information provided above, the aggregate expenditure function for this economy is: (Round your response for the intercept term to the nearest whole number and for the slope term to two decimal places.) The simple multiplier for this economy can be calculated as 10. (Round your response to one decimal place.) The value of the simple multiplier implies that a $200 decrease in the autonomous investment expenditures would lead to a $ in the equilibrium level of actual income. (Round your response to the nearest dollar.) increase AE = 600+ 0.9 Y decreasearrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSON
Engineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education