Please answer everything in the photos including the graphs. PLANNED EXPENDITURE (Billions of dollars)200160140120Z1008060AE Line180402000 20MPC-0.70406080100 120140 160REAL INCOME (Billions of dollars)45-Degree LineMultiplier 1-MPC180200IIII- ΔNew AE LineIn the first economy (with MPC = 0.5), the $30 billion decrease in planned investment causes equilibrium income to decrease by $the second economy (with MPC = 0.70), the $30 billion decrease in planned investment causes equilibrium income to decrease by STherefore, a lower MPC is associated with amultiplier.Now, confirm your graphical analysis algebraically using the formula for the multiplier:New EquilibriumUsing the same method, the multiplier for the second economy isFor the first economy with an MPC of 0.5, the effect of the $30 billion decrease in planned investment becomes the following:(?)Change in Equilibrium Real Income = Change in Planned Expenditure x MultiplierXXbillion. Inbillion. Consider two hypothetical economies that are perfectly similar except for their marginal propensity to consume (MPC). Each economy is currently inequilibrium with real income and planned expenditure equal to $100 billion, as given by the black points (plus signs) on the following two graphs.Assume that both economies are closed to trade, and that neither economy has taxes that change with income. The graphs also plot the 45-degreeline.The first economy has an MPC equal to 0.5. Therefore, its initial planned expenditure line has a slope of 0.5 and passes through the point (100, 100).The second economy has an MPC equal to 0.70. Therefore, its initial planned expenditure line has a slope of 0.70 and passes through the point (100,100).Now, suppose there is a decrease of $30 billion in planned investment in each economy.Place a green line (triangle symbol) on each of the preceding graphs to indicate the new planned expenditure line for each economy. Then place ablack point (plus symbol) on each graph showing the new level of equilibrium income. (Hint: You can see the slope and vertical axis intercept of a lineon the graph by selecting it.)PLANNED EXPENDITURE (Billions of dollars)200180160+1401201008060402000AE Line20MPC-0.54045-Degree Line60 80 100 120REAL INCOME (Billions of dollars)140 160 180 200New AE LineNew Equilibrium

The first economy has an MPC equal to 0.5. The second economy has an MPC equal to 0.70 There is a…

The first economy has an MPC equal to 0.5. Therefore, its initial planned expenditure line has a slope of 0.5 and passes through the point (100, 100). The second economy has an MPC equal to 0.70. Therefore, its initial planned expenditure line has a slope of 0.70 and passes through the point (100, 100).

The first economy has an MPC equal to 0.5. Therefore, its initial planned expenditure line has a slope of 0.5 and passes through the point (100, 100). The second economy has an MPC equal to 0.70. Therefore, its initial planned expenditure line has a slope of 0.70 and passes through the point (100, 100).

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

This question concerns the Ricardian Model. In autarky, the relative price of a Computer (in terms of barrels of Beer) in Country A is 25B/C. In autarky in Country B, the same relative price is 40B/C. If the two countries open to trade, which country will export Beer? Give one possible world equilibrium price of Computers once trade has been opened (there are an infinite number).
The following are exogenous (not directly affected by income): G = 11 I = 4 X = M = 0 The consumption function is: C = k + cY, where k = 3, c = 0.8 Imagine the maximum potential output or real GDP of this economy is 100. Assume that is the same as saying we reach the edge of the PPF at 100. Now assume we want to get that economy from the current level of GDP to its maximum potential of 100. We can do this in two ways - either increase government spending (G) or reduce taxes, (we will soon learn that doing this is called "using expansionary fiscal policy") but this economy does not tax its citizens so the only way to do it to increase G. How much do we increase government spending so that actual GDP reaches potential output/edge of the PPF at 100?
Consider the imaginary small country of Kootenay. Assume that Kootenay is closed to trade, so that its net exports are equal to zero. Suppose that the economy is described by the following consumption function, where C is consumption, Y is income (real GDP), IP is planned investment, G is government purchases, and T is taxes: C = $40 billion+0.5×(Y – T) Suppose G=$115 billion, IP=$50 billion, and T=$10 billion. Given the consumption function and the fact that, in a closed economy, planned expenditure can be calculated as Y=C+IP+G, the equilibrium income level is billion. Suppose that government purchases are increased by $100 billion. The new equilibrium level of income will be equal to billion. Based on the effect of the change in government purchases on equilibrium income, you can tell that this economy's multiplier is equal to
The figure to the right shows a country in pretrade equilibrium at point X, where the relative price per ton of coal is 1.2 tons of sugar (blue line). Once trade commences, suppose the world relative price of coal ends up at 2.2 tons of sugar (red line) and, as a result, this country chooses to export 2 tons of coal. Using the point drawing tool, show this country's post-trade consumption point. Carefully follow the instructions above and only draw the required object. Compared to its pretrade consumption choice, this country is now consuming A. less coal and more sugar. B. less sugar and more coal. C. more of both goods. D. less of both goods. C ← 10- 9- 8-7.8 7 6- 5- เว 4- 3- 2- 1 0- -O Sugar: Qs and Ds 3.4 0 -~ 1 2 $3 -3 3 X st 4 -LO 5 6 7 8 9 Coal: Qc & Dc 10 Q
Consider a small country that is closed to trade, so its net exports are equal to zero. The following equations describe the economy of this country in billions of dollars, where C is consumption, DI is disposable income, I is investment, and G is government purchases: C� = = 30+0.8×DI30+0.8×DI G� = = 5050 I� = = 6060 Initially, this economy had a lump sum tax. Suppose net taxes were $50 billion, so that disposable income was equal to Y – 50, where Y is real GDP. In this case, this economy's aggregate output demanded was ___________ . Suppose the government decides to increase spending by $10 billion without raising taxes. Because the spending multiplier is ____________ , this will increase the economy's aggregate output demanded by ____________ . Now suppose that the government switches to a proportional tax on income of 10%. Because consumers retain the remaining 90% of their income, disposable income is now equal to 0.90Y. In this case, the economy's aggregate output…
The economy of Ashville is currently in a macroeconomic equilibrium, as depicted by point E, in the accompanying figure. The main component of Ashville's exports consist of the raw materials that it derives from its natural resources. Suppose that the world demand for raw materials decreases sharply, resulting in a decrease in the price of raw materials throughout the world. The decrease in the world demand for raw materials, which is the major source of Ashville's exports, will the level of aggregate demand in Ashville, causing a ▼shift in the AD curve. The decrease in the world demand for raw materials, which implies a decrease in the level of factor prices, leads to in the unit cost of production in Ashville, causing a 7 shift in the AS curve. Use the three-point curve drawing tool twice to draw and label new AS and AD curves that shows the effect of this shock on Ashville's economy. Carefully follow the instructions above, and only draw the required object. The overall effect of…
The graph below is associated with a hypothetical country. Consider a decrease in aggregate demand (AD). Specifically, aggregate demand shifts to the left from AD₁ to AD2, causing the quantity of output demanded to fall at each price level. For instance, at a price level of 140, output is now $200 billion, where initially it was $300 billion. PRICE LEVEL 170 160 150 140 130 120 110 100 90 0 100 +-+ I I 200 300 400 500 OUTPUT (Billions of dollars) AD1 AD2 600 700 800 ?
Consider a small economy that is closed to trade, so that its net exports are zero. Suppose that the economy has the following consumption function, where C is consumption, Y is income (real GDP), IP is planned investment, G is government purchases, and T is taxes:C = $40 billion+0.5×(Y – T) Suppose G=$115 billion, IP=$50 billion, and T=$10 billion.Given the consumption function and the fact that, in a closed economy, planned expenditure can be calculated as Y=C+IP+G , the equilibrium income level is$ billion.Suppose that government purchases are increased by $100 billion. The new equilibrium level of income will be equal to$ billion.Based on the effect of the change in government purchases on equilibrium income, you can tell that this economy's multiplier is equal to_________?
Complete the question with the two words missing: Bernhofen and Brown 2004 tests one important implication of Ricardo's model: The value of imports minus exports at autarky prices should be [ ....... ]. This implies that the value of imports minus exports at international prices should be [ ....... ]
2.a) Using the following parameters calculate equilibrium Y in a private closed, private open and mixed open economy using the mathematical and tabular methods. Consumption=2600 +0.7Y Tax=200+0.1Y Government Spending=4800 Investment = 5000 Exports-800 Imports = 600+0.05Y b) Illustrate and explain how the AE curve changes as we move from a private closed to private open to mixed open economy and also, also what happens to the multiplier
The graph below is associated with a hypothetical country. Consider a decrease in aggregate demand (AD). Specifically, aggregate demand shifts to the left from AD to AD₂, causing the quantity of output demanded to fall at each price level. For instance, at a price level of 140, output is now $200 billion, where initially it was $300 billion. PRICE LEVEL 170 160 150 140 130 120 110 100 8 90 0 100 AD₁ AD₂ 200 300 400 500 600 OUTPUT (Billions of dollars): 700 800 ?
Consider two hypothetical economies that are perfectly similar except for their marginal propensity to consume (MPC). Each economy is currently in equilibrium with real income and planned expenditure equal to $100 billion, as given by the black points (plus signs) on the following two graphs. Assume that both economies are closed to trade, and that neither economy has taxes that change with income. The graphs also plot the 45-degree line. The first economy has an MPC equal to 0.5. Therefore, its initial planned expenditure line has a slope of 0.5 and passes through the point (100, 100). The second economy has an MPC equal to 0.75. Therefore, its initial planned 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 planned investment in each economy. In the first economy (with MPC = 0.5), the $20 billion increase in planned investment causes equilibrium income to increase by billion. In the second…