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, Problem 4DQ
To determine
How up-sloping AS curve weakens the multiplier effect.
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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 3. 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? The aggregate demand curve will shift_____ by $____ billion. In what direction and by how much will it eventually shift? The aggregate demand curve will shift_____ by $____ billion..
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?
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. a. If household wealth falls by 5 percent because of declining house values, and the real interest rate falls by 3 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level?arrow_forward2. L Give Up! Suppose the Japanese economy has been experiencing slow growth. As a result, the Prime Minister, who thinks John Maynard Keynes was the greatest economist ever, has decided to increase government spending. The Prime Minister asks the head of the economic council to determine the increase in government spending necessary to bring the economy to full employment. Assume there is a GDP gap of 1 trillion yen and the marginal propensity to consume (MPC) is 0.60. What advice should the head of the economic council give the Prime Minister? O The recessionary gap is equal to 400 billion yen. O The inflationary gap is equal to 400 billion yen. O The recessionary gap is equal to 625 billion yen. O The inflationary gap is equal to 625 billion yen.arrow_forward9. Suppose Amal calculates her permanent income by adaptive expectations . Year 2020 Amal's permanent income was 38,000 , and year 2021 actual income is 41,000 . Assume that , long - run marginal to consume is 0.90 and short - run marginal propensity to consume is 0.28 . What is her consumption expenditure year 2021 ? O 36.774 O 35,040 O 40.226 O 33.454 O 34.740 O None of the above is correctarrow_forward
- Given that marginal propensity to save (MPS) is 0.5, what is the multiplier? O 2 O 4 0.5arrow_forwardWhy is the aggregate demand curve downsloping? Specify how your explanation differs from the explanation for the downsloping demand curve for a single product. What role does the multiplier play in shifts of the aggregate demand curve?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_forward
- CF 1 2 3 4. 5 Disposable income (trillions of 2005 dollars) In the above figure, at a disposable income level of $2 trillion, saving equals Select one: O a. $4 trillion. O b. zero. O c. consumption expenditures. O d. disposable income. 6. 3 DT Processing of...pdf 2 Introduction to..pdf odf here to search Consumption expenditure (trillions of 2005 dollars) 5, IIarrow_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_forwardIf the multiplier is 4, what is the MPC? O 0.25 O 0.5 O 0.75 1arrow_forward
- An increase in interest rates shifts the Investment Demand curve up and increases Business Investment Expenditures. O True O False Households' autonomous savings is exactly the same as autonomous consumption. O True O False An increase in households' wealth will increase the marginal propensity to consume. O True O False Private-Sector Savings equal Consumption Expenditures at the Break-Even Disposable Income. True O False In National Income Accounting, an increase in unplanned inventory increases actual business investment expenditures (la). O True O Falsearrow_forwardIn a macro model where the marginal propensity to consume out of disposable income is 0.80, the net tax rate is 0.25, and the marginal propensity to import is 0.11, the simple multiplier will be O A. 3.448 O B. 2.041 OC. 0.490 O D. 1.961 O E. 1.408arrow_forwardFigure: 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.arrow_forward
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