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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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Refer to columns 1 and 6 in the table for problem 5. Incorporate government into the table by assuming that it plans to tax and spend \(20 billion at each possible level of GDP. Also, assume that the tax is a personal tax and that government spending does not induce a shift in the private aggregate expenditures schedule. What is the change in equilibrium GDP caused by the addition of government?
(1) Real Domestic Output (GDP = DI), Billions | (2) Aggregate Expenditures, Private Closed Economy, Billions | (3) Exports, Billions | (4) Imports, Billions | (5) Net Exports, Billions | (6) Aggregate Expenditures, Private Open Economy, Billions |
\)200 | \(240 | \)20 | \(30 | -\)10 | $230 |
250 | 280 | 20 | 30 | -10 | 270 |
300 | 320 | 20 | 30 | -10 | 310 |
350 | 360 | 20 | 30 | -10 | 350 |
400 | 400 | 20 | 30 | -10 | 390 |
450 | 440 | 20 | 30 | -10 | 430 |
500 | 480 | 20 | 30 | -10 | 470 |
550 | 520 | 20 | 30 | -10 | 510 |
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?
Using the consumption and saving data in problem 1 and assuming investment is \(16 billion, what are saving and planned investment at the \)380 billion level of domestic output? What are saving and actual investment at that level? What are saving and planned investments at the \(300 billion level of domestic output? What are the levels of saving and actual investment? In which direction and by what amount will unplanned investment change as the economy moves from the \)380 billion level of GDP to the equilibrium level of real GDP? From the \(300 billion level of real GDP to the equilibrium level of GDP?
Possible Levels of Employment, Millions | Real Domestic Output (GDP = DI), Billions | Consumption, Billions | Saving, Billions (DI 鈥� C) |
40 | \)240 | \(244 | -\)4 |
45 | 260 | 260 | 0 |
50 | 280 | 276 | 4 |
55 | 300 | 292 | 8 |
60 | 320 | 308 | 12 |
65 | 340 | 324 | 16 |
70 | 360 | 340 | 20 |
75 | 380 | 356 | 24 |
80 | 400 | 372 | 28 |
By how much will GDP change if firms increase their investment by $8 billion and the MPC is 0.80? If the MPC is 0.67?
The data in columns 1 and 2 in the table below are for a private closed economy.
Use columns 1 and 2 to determine the equilibrium GDP for this hypothetical economy.
Now open up this economy to international trade by including the export and import figures of columns 3 and 4. Fill in columns 5 and 6 and determine the equilibrium GDP for the open economy. What is the change in equilibrium GDP caused by the addition of net exports?
Given the original \(20 billion level of exports, what would be net exports and the equilibrium GDP if imports were \)10 billion greater at each level of GDP?
What is the multiplier in this example?
(1) Real Domestic Output (GDP = DI), Billions | (2) Aggregate Expenditures, Private Closed Economy, Billions | (3) Exports, Billions | (4) Imports, Billions | (5) Net Exports, Billions | (6) Aggregate Expenditures, Private Open Economy, Billions |
\(200 | \)240 | \(20 | \)30 | ||
250 | 280 | 20 | 30 | ||
300 | 320 | 20 | 30 | ||
350 | 360 | 20 | 30 | ||
400 | 400 | 20 | 30 | ||
450 | 440 | 20 | 30 | ||
500 | 480 | 20 | 30 | ||
550 | 520 | 20 | 30 |
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