The following table shows consumption (C), investment spending (I), and government purchases (G), for some hypothetical economy at several levels of income (reported in billions of dollars of real GDP). Assume that in this economy, income is taxed at a rate of 25%, base consumption is $50 billion, and that the marginal propensity to consume (MPC) is 0.667, or 2/3. Further assume that this economy is closed, that is, there is no international trade and so net exports are always equal to zero. Use the given information to fill in disposable income, consumption, and planned expenditures in the following table. Income: Real GDP Disposable (After Tax) Income C Ip G Planned Expenditures (Billions of dollars) (Billions of dollars) (Billions of dollars) (Bil
The following table shows consumption (C), investment spending (I), and government purchases (G), for some hypothetical economy at several levels of income (reported in billions of dollars of real GDP). Assume that in this economy, income is taxed at a rate of 25%, base consumption is $50 billion, and that the marginal propensity to consume (MPC) is 0.667, or 2/3. Further assume that this economy is closed, that is, there is no international trade and so net exports are always equal to zero. Use the given information to fill in disposable income, consumption, and planned expenditures in the following table. Income: Real GDP Disposable (After Tax) Income C Ip G Planned Expenditures (Billions of dollars) (Billions of dollars) (Billions of dollars) (Bil
Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?
Section9.A: The Simple Algebra Of Income Determination And The Multiplier
Problem 4TY
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The following table shows consumption (C), investment spending (I), and government purchases (G), for some hypothetical economy at several levels of income (reported in billions of dollars of real GDP). Assume that in this economy, income is taxed at a rate of 25%, base consumption is $50 billion, and that the marginal propensity to consume (MPC) is 0.667, or 2/3.
Further assume that this economy is closed, that is, there is no international trade and so net exports are always equal to zero.
Use the given information to fill in disposable income, consumption, and planned expenditures in the following table.
Income: Real GDP
|
Disposable (After Tax) Income
|
C
|
Ip
|
G
|
Planned Expenditures
|
---|---|---|---|---|---|
(Billions of dollars)
|
(Billions of dollars)
|
(Billions of dollars)
|
(Billions of dollars)
|
(Billions of dollars)
|
(Billions of dollars)
|
0 | 0 | 50 | 100 | 50 |
|
100 |
|
|
100 | 50 |
|
200 |
|
|
100 | 50 |
|
300 |
|
|
100 | 50 |
|
400 |
|
|
100 | 50 |
|
500 |
|
|
100 | 50 |
|
The following graph shows income (real GDP) on the horizontal axis and planned expenditure on the vertical axis.
Use the black line (plus symbol) to plot a 45-degree line on this graph. Then use all 6 of the the blue points (circle symbols) to plot the planned expenditure line for this economy. Be sure to plot these points at the income levels listed in the table (0, 100, 200, 300, 400, and 500 billion dollars).
Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.
On the previous graph, use the black point (plus symbol) to indicate the equilibrium income.
Note: Dashed drop lines will automatically extend to both axes.
Suppose income is currently $500 billion. This would mean that , which would send a signal to firms to .
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