follow instructions on screenshots Consider two closed economies that are identical except for their marginal propensity to consume (MPC). Each economy is currently in equilibrium withreal GDP and aggregate expenditure equal to $100 billion, as shown by the black points on the following two graphs. Neither economy has taxes thatchange 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 s20 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 ablack point (plus symbol) on each graph showing the new level of equilibrium autput. (Hint: You can see the slope and vertical axis intercept of a lineon the graph by selecting it.)MPC=0.520045-Degree Line180New AE Line160140120New Equibrium1008060AE Line4020O 20 40100120140160 180 200REAL GDP (Bilions of dollars)AGGREGATE EXPENDITURE (Billions of dollars) MPC=0.7520045 Degree Line180New AE Line160140120New Equibrium1006040AE Line20204060 80 100 120140 160180 200REAL GDP (Bilions of dollars)In the first economy (with MPC = 0.5), the $20 billion increase in investment causes equilibrium output to increase by Sbillion. In the secondeconomy (with MPC = 0.75), the $20 billion increase in investment causes equilibrium output to increase by Sis associated with abillion. Therefore, a lower MPCmultiplier.AGGREGATE EXPENDITURE (BIlions of doliars)

There are two closed economy countries 1st with 0.5 MPC and $20 billion Increases in Investment2nd…

In the first economy (with MPC = 0.5), the $20 billion increase in investment causes equilibrium output to increase by [S billion. In the second economy (with MPC = 0.75), the $20 billion increase in investment causes equilibrium output to increase by S is associated with a billion. Therefore, a lower MPC multiplier.

In the first economy (with MPC = 0.5), the $20 billion increase in investment causes equilibrium output to increase by [S billion. In the second economy (with MPC = 0.75), the $20 billion increase in investment causes equilibrium output to increase by S is associated with a billion. Therefore, a lower MPC multiplier.

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter9: Aggregate Demand

Section: Chapter Questions

Problem 4.8P

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