The multiplier effect represents Keynes’s insight that: (a) households would rather spend than save. (b) businesses prefer to be in the expansion phase of the business cycle. (c) an increase in spending will increase equilibrium income by more than the initial increase in spending. (d) an increase in equilibrium income will increase the marginal propensity to consume.
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The multiplier effect represents Keynes’s insight that:
(a) households would rather spend than save.
(b) businesses prefer to be in the expansion phase of the business cycle.
(c) an increase in spending will increase equilibrium income by more than the initial increase in
spending.
(d) an increase in equilibrium income will increase the marginal propensity to consume.
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Solved in 3 steps
- According to the multiplier concept when there is a change in any one of the components of total expenditures (C, I, G, or X-IM), a multiple impact upon: a) the rate of unemployment will occur. b) saving in the economy will occur. c) household expenditures will occur. d) income will occur.According to Keynes’ Law... A) The total demand for products determine the level of gross domestic product and may not equal the supply capacity of the economy in the short run. B) The total demand always equals the total supply capacity in the short run. C) The total demand tends to rise above the total supply capacity in the short run which leads to recessions D) The total supply of products determines the level of gross domestic product and the level of demand in the economy in the long run.7. Deriving and exploring the total expenditures curve The following graph shows total production (TP) and the level of Natural Real GDP (NRGDP) for a hypothetical economy. When Real GDP is $325 billion, consumption is $275 billion, government purchases are $50 billion, and investment is $25 billion. When Real GDP is $375 billion, consumption is $300 billion, government purchases are $50 billion, and investment is $25 billion. Use the blue line (circle symbol) to plot the economy's total expenditure function within a simplified Keynesian framework. 450 425 X 400 375 TOTAL EXPENDITURE (Billions of dollars) 500 475 350 325 300 300 TP NRGDP 325 350 375 400 425 REAL GDP (Billions of dollars) 450 475 500 TE ?
- In the Keynesian model the multiplier is equal to (4 marks)A The equilibrium level of output for a given level of aggregate expenditure.B The increase in aggregate expenditure brought about by a change in investment.C The increase in the equilibrium level of income divided by the change in autonomous expenditure.D The increase in autonomous expenditure when equilibrium income increases.In a closed economy Keynesian-cross framework, I = 20, c0 = 20, and MPC = 0.6. a) Show in a diagram how a halving of investment will lead to a fall in income. b) Show the same mathematically. c) Explain in words includes the role of (i) the multiplier and (ii) inventories in thisThe Canadian Government decides to inject $10,000,000 into the economy by increasing its spending on infrastructure. If the Marginal Propensity to Consume is .6 or 60% what will be the overall change in GDP/Real Output?
- Use the Keynesian cross model to predict the impact of an increase in government purchases on equilibrium GDP. State the direction of the change and give a formula for the size of the impact. An increase in taxes shifts the planned expenditure function downward. The change in income is given by AY= ΔΥ= -MPC 1-MPC An increase taxes shifts the planned expenditure function upward. The change in income is given by -MPC 1-MPC AY= XAT An increase in taxes shifts the planned expenditure function inward. The change in income is given by AY= 1 1-MPC XAT 1 1-MPC The direction of the shift is undetermined without knowing the slope of the PE function. The change in income is given by XAT XATb. Consider the following Keynesian Model: C= 50 + 0.4Yd T= 40 I=0.2Y X= 16 G= 30 M= 20 a. Using the equilibrium condition, solve for the value of the equilibrium output. b. What is the value of consumption? c. Write the savings function and use it to calculate the value of savings. d. What is the value of the multiplier? e. Is there a trade deficit or surplus? Give reasons for your answer.According to Keynes' Law... The total demand for products determine the level of gross domestic product and may not equal the supply capacity of the economy in the short run. The total supply of products determines the level of gross domestic product and the level of demand in the economy in the long run. The total demand always equals the total supply capacity in the short run. The total demand tends to rise above the total supply capacity in the short run which leads to recessions 10 발 lyi
- The marginal propensity to consume is is .3 find the marginal propensity to save.According to Keynes, wealth or credit is a factor that affects consumption. An example of wealth is A,B,C,OR D one answer a an increase in expected future income. b a decline in interest rates. c an increase in economic output. d an increase in the value of stockThe simple multiplier is: a) consumption spending divided by saving. b) one divided by one minus the marginal propensity to consume. c) one plus the marginal propensity to consume. d) one divided by one plus the marginal propensity to consume. e) the MPC.