AGGREGATE EXPENDITURE (Billions of dollars) 200 180 160 140 120 100 80 60 40 40 20 0 AE Line 0 20 20 MPC=0.75 45-Degree Line 40 60 80 100 120 140 160 180 200 REAL GDP (Billions of dollars) New AE Line + New Equilibrium ? billion. In the second billion. Therefore, a lower MPC is multiplier. n the first economy (with MPC = 0.5), the $20 billion increase in investment causes equilibrium output to increase by $ conomy (with MPC = 0.75), the $20 billion increase in investment causes equilibrium output to increase by $ ssociated with a Consider two closed economies that are identical except for their marginal propensity to consume (MPC). Each economy is currently in equilibrium with real GDP and aggregate expenditure equal to $100 billion, as shown by the black points on the following two graphs. Neither economy has taxes that change with income. The grey lines show the 45-degree line on each graph. The first economy's MPC is 0.5. Therefore, its initial aggregate expenditure line has a slope of 0.5 and passes through the point (100, 100). The second economy's MPC is 0.75. Therefore, its initial aggregate expenditure line has a slope of 0.75 and passes through the point (100, 100). Now, suppose there is an increase of $20 billion in investment in each economy. Place a green line (triangle symbol) on each of the previous graphs to indicate the new aggregate expenditure line for each economy. Then place a black point (plus symbol) on each graph showing the new level of equilibrium output. (Hint: You can see the slope and vertical axis intercept of a line On the graph by selecting it.) GGREGATE EXPENDITURE (Billions of dollars) 200 180 160 140 120 8 100 80 60 60 40 40 AE Line مص MPC=0.5 45-Degree Line New AE Line + New Equilibrium ?
AGGREGATE EXPENDITURE (Billions of dollars) 200 180 160 140 120 100 80 60 40 40 20 0 AE Line 0 20 20 MPC=0.75 45-Degree Line 40 60 80 100 120 140 160 180 200 REAL GDP (Billions of dollars) New AE Line + New Equilibrium ? billion. In the second billion. Therefore, a lower MPC is multiplier. n the first economy (with MPC = 0.5), the $20 billion increase in investment causes equilibrium output to increase by $ conomy (with MPC = 0.75), the $20 billion increase in investment causes equilibrium output to increase by $ ssociated with a Consider two closed economies that are identical except for their marginal propensity to consume (MPC). Each economy is currently in equilibrium with real GDP and aggregate expenditure equal to $100 billion, as shown by the black points on the following two graphs. Neither economy has taxes that change with income. The grey lines show the 45-degree line on each graph. The first economy's MPC is 0.5. Therefore, its initial aggregate expenditure line has a slope of 0.5 and passes through the point (100, 100). The second economy's MPC is 0.75. Therefore, its initial aggregate expenditure line has a slope of 0.75 and passes through the point (100, 100). Now, suppose there is an increase of $20 billion in investment in each economy. Place a green line (triangle symbol) on each of the previous graphs to indicate the new aggregate expenditure line for each economy. Then place a black point (plus symbol) on each graph showing the new level of equilibrium output. (Hint: You can see the slope and vertical axis intercept of a line On the graph by selecting it.) GGREGATE EXPENDITURE (Billions of dollars) 200 180 160 140 120 8 100 80 60 60 40 40 AE Line مص MPC=0.5 45-Degree Line New AE Line + New Equilibrium ?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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hi there is another picture as well
Transcribed Image Text:AGGREGATE EXPENDITURE (Billions of dollars)
200
180
160
140
120
100
80
60
40
40
20
0
AE Line
0
20
20
MPC=0.75
45-Degree Line
40
60
80 100
120 140 160 180 200
REAL GDP (Billions of dollars)
New AE Line
+
New Equilibrium
?
billion. In the second
billion. Therefore, a lower MPC is
multiplier.
n the first economy (with MPC = 0.5), the $20 billion increase in investment causes equilibrium output to increase by $
conomy (with MPC = 0.75), the $20 billion increase in investment causes equilibrium output to increase by $
ssociated with a
Transcribed Image Text:Consider two closed economies that are identical except for their marginal propensity to consume (MPC). Each economy is currently in equilibrium
with real GDP and aggregate expenditure equal to $100 billion, as shown by the black points on the following two graphs. Neither economy has taxes
that change with income. The grey lines show the 45-degree line on each graph.
The first economy's MPC is 0.5. Therefore, its initial aggregate expenditure line has a slope of 0.5 and passes through the point (100, 100).
The second economy's MPC is 0.75. Therefore, its initial aggregate expenditure line has a slope of 0.75 and passes through the point (100, 100).
Now, suppose there is an increase of $20 billion in investment in each economy.
Place a green line (triangle symbol) on each of the previous graphs to indicate the new aggregate expenditure line for each economy. Then place a
black point (plus symbol) on each graph showing the new level of equilibrium output. (Hint: You can see the slope and vertical axis intercept of a line
On the graph by selecting it.)
GGREGATE EXPENDITURE (Billions of dollars)
200
180
160
140
120
8
100
80
60
60
40
40
AE Line
مص
MPC=0.5
45-Degree Line
New AE Line
+
New Equilibrium
?
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