PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Chapter 13, Problem 8RQ
To determine
Explain the more effective fiscal policy measure to stimulate planned aggregate expenditure.
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If the Marginal Propensity to Consume (MPC) is .90, estimate the total (multiplied) effect of government purchases/spending of $100B in the economy in terms of its aggregate expenditure (Hint: Multiplier = 1 / 1 – MPC).
Calculate the net cumulative change in aggregate expenditure if taxes were cut by $200 billion and MPC is estimated to be .75. What if government expenditure was increased by $200 billion?
(Hint: Total change in expenditure = multiplier x new expenditure or spending injection)
The total expenditure schedule in Macroland begins with these initial levels (in billions of dollars): Income = 1,000; Consumption = 900; Investment = 200; Government = 300; Net Exports = −100. If the MPC = 0.75 and income increases in increments of 200, find the equilibrium level of income. If full employment requires an income level of 2,000, what (if anything) should the government do? Indicate both the direction of the spending change and the size of the spending change.
The levels of real disposable income and aggregate expenditures for an economy are given in the following table. -- Use
the blue points (circle symbol) to plot the expenditures line for this economy on the following graph. Line segments will
automatically connect the points. The black line represents the 45-degree line, where aggregate expenditures equal real
GDP. Use the black point (plus symbol) to indicate equilibrium real GDP. - - In the previous graph, if the economy
produces at an output level that is higher than equilibrium GDP, then the economy is in because aggregate expenditures
are real GDP, and unplanned inventory investment is
Read GDP (Y)
Aggregate Expenditures (AE)
(Trillions of dollars per year) (Trillions of dollars per year)
0
1
1
1.75
2
2.5
3
3.25
4
4
5
4.75
6
5.5
7
6.25
8
7
Use the blue points (circle symbol) to plot the expenditures line for this economy on the following graph. Line segments will automatically connect the
points. The black line represents the…
Chapter 13 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
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