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Chapter 11: Q4. (page 237)
Suppose that a certain country has an MPC of 0.9 and a real GDP of \(400 billion. If its investment spending decreases by \)4 billion, what will be its new level of real GDP?
The new level of GDP will be $360 billion.
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Assuming the level of investment is \(16 billion and independent of the level of total output, complete the following table and determine the equilibrium levels of output and employment in this private closed economy. What are the values of the MPC and MPS?
| Possible Levels of Employment, Millions | Real Domestic Output (GDP = DI), Billions | Consumption, Billions | Saving, Billions |
| 40 | \)240 | $244 | |
| 45 | 260 | 260 | |
| 50 | 280 | 276 | |
| 55 | 300 | 292 | |
| 60 | 320 | 308 | |
| 65 | 340 | 324 | |
| 70 | 360 | 340 | |
| 75 | 380 | 356 | |
| 80 | 400 | 372 |
Refer to the accompanying table in answering the questions that follow:
(1) Possible Levels of Employment, Millions | (2) Real Domestic Output, Millions | (3) Aggregate Expenditures (Ca + Ig+ Xn+ G), Millions |
90 | \(500 | \)520 |
100 | 550 | 560 |
110 | 600 | 600 |
120 | 650 | 640 |
130 | 700 | 680 |
If full employment in this economy is 130 million, will there be an inflationary expenditure gap or a recessionary expenditure gap? What will be the consequence of this gap? By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the inflationary expenditure gap or the recessionary expenditure gap? What is the multiplier in this example?
Will there be an inflationary expenditure gap or a recessionary expenditure gap if the full employment level of output is $500 billion? By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the gap? What is the multiplier in this example?
Assuming that investment, net exports, and government expenditures do not change with changes in real GDP, what are the values of the MPC, the MPS, and the multiplier?
Assuming the economy is operating below its potential output, how does an increase in net exports affect real GDP? Why is it difficult, perhaps even impossible, for a country to boost its net exports by increasing its tariffs during a global recession?
Answer the following questions, which relate to the aggregate expenditures model:
If Ca is \(100, Ig is \)50, Xn is 鈭抃(10, and G is \)30, what is the economy鈥檚 equilibrium GDP?
If real GDP in an economy is currently \(200, Ca is \)100, Ig is \(50, Xn is 鈭抃)10, and G is \(30, will the economy鈥檚 real GDP rise, fall, or stay the same?
Suppose that full-employment (and full-capacity) output in an economy is \)200. If Ca is \(150, Ig is \)50, Xn is 鈭抃(10, and G is \)30, what will be the macroeconomic result?
What is an investment schedule, and how does it differ from an investment demand curve?
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