Macroeconomics
21st Edition
ISBN: 9781259915673
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 12.A, Problem 1ADQ
To determine
Aggregate Demand and Aggregate Expenditure Model and its relation.
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Students have asked these similar questions
Suppose consumption function is specified as C= $200 + 0.75Ya planned investment is $600, net taxes are $400, and
government spending totals $500 of a hypothetical economy in 2020. Find algebraically: LO 3
A. The equilibrium level of aggregate output by equating aggregate output and planned aggregate expenditure.
B. Consumption when aggregate output is at the equilibrium level.
C. Saving when aggregate output is at the equilibrium level.
D. Establish that leakages equal injections at the equilibrium level of aggregate output.
Figure: Aggregate Expenditures Curve II
Aggregate
expenditures
(per year)
$800
Reference: Ref 11-16
45-degree
line
AE
$2,000 Real GDP (per year)
(Figure: Aggregate Expenditures Curve II) The slope of the aggregate expenditures curve in the aggregate expenditures
model shown in this figure is:
O 45 degrees.
O 0.6.
O 0.5.
O 0.25.
In the Keynesian AE model, if the autonomous components of consumption,
investment, government spending, and net export spending total $100 billion,
and the MPC is 0.75, what will unplanned changes in inventory be when output is
$345 billion?
O-$4 billion
O $4 billion
O $5 billion
O -$5 billion
When output is higher than the intersection of the Keynesian AE and the 45-
degree line, which of the following can we expect to happen?
Osavings to be negative and consumption to fall
O inventories to rise and output to fall
O
inventories to fall and output to rise
consumers to expect higher incomes and consumption to rise
Chapter 12 Solutions
Macroeconomics
Ch. 12.7 - Prob. 1QQCh. 12.7 - Prob. 2QQCh. 12.7 - Prob. 3QQCh. 12.7 - Prob. 4QQCh. 12.A - Prob. 1ADQCh. 12.A - Prob. 2ADQCh. 12.A - Prob. 1ARQCh. 12.A - Prob. 2ARQCh. 12.A - Prob. 1APCh. 12.A - Prob. 2AP
Ch. 12 - Prob. 1DQCh. 12 - Prob. 2DQCh. 12 - Prob. 3DQCh. 12 - Prob. 4DQCh. 12 - Prob. 5DQCh. 12 - Prob. 6DQCh. 12 - Prob. 7DQCh. 12 - Prob. 8DQCh. 12 - Prob. 9DQCh. 12 - Prob. 1RQCh. 12 - Prob. 2RQCh. 12 - Prob. 3RQCh. 12 - Prob. 4RQCh. 12 - Prob. 5RQCh. 12 - Prob. 6RQCh. 12 - Prob. 7RQCh. 12 - Prob. 8RQCh. 12 - Prob. 9RQCh. 12 - Prob. 1PCh. 12 - Prob. 2PCh. 12 - Prob. 3PCh. 12 - Prob. 4PCh. 12 - Prob. 5P
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- Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy's multiplier is 4. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? In what direction and by how much will it eventually shift?arrow_forwardWhich of the following changes in personal income tax would lead to the smallest increase in consumption? O a. O b. a $15 000 decrease in taxes, if MPC equals 0.6 O c. a $30 000 decrease in taxes, if MPC equals 0.25 Oe. a $20 000 decrease in taxes, if MPC equals 0.5 O d. a $12 000 decrease in taxes, if MPC equals 0.75 a $10 000 decrease in taxes, if MPC equals 0.2arrow_forwardProblem 3. Analyze the general equilibrium effects of an increase in taxes. Illustrate your answer with a graph. Organize your answer by discussing (1) Does the change shift the IS curve and/or the LM curve? (2) How does the change affect the equilibrium interest rate and output? (3) Describe the effect of the change with your own words by focusing on the changes in the composition of GDP. Does the change shift the IS curve and/lor the LM curve? How does the change affect the equilibrium interest rate and output? Describe the effect of the change with your own words by focusing on the changes in the composition of GDP.arrow_forward
- Refer to the information provided in Figure 1 below to answer the questions that follow Figure 1 AE 1,600 400 S450 1,600 Aggregate output, Y (billions of dollars) 10. Refer to Figure 1. Which of the following equations best represents the aggregate expenditure function? O AE = 1,200 + 0.8Y. %3D O AE 1,600 + 0.4Y. %3D O AE = 1,000 + 0.5Y. %3D AE = 400+ 0.75Y. Planned aggregate expenditure, AE (billions of dollars)arrow_forwardline shows the relationship between planned aggregate expenditure and output, and line represents the condition that planned aggregate expenditure and output are equal. In the Keynesian cross diagram, the the expenditure; 45-degree O45-degree; consumption function 45 degree; expenditure consumption function; 45-degreearrow_forwardQUESTION 16 If the marginal propensity to save is 0.1, the marginal propensity to import is 0.1 and the marginal tax rate is 0.2, how much would consumption increase if income rises by £8billion? O a. 4.8 O b. 13.3 O c. 3.2 O d. 20 4arrow_forward
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