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Chapter 11: Q5. (page 236)
If the multiplier is 5 and investment increases by \(3 billion, equilibrium real GDP will increase by
\)2 billion.
\(3 billion.
\)8 billion.
$15 billion.
Option (d): $15 billion
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Question: If an economy has an inflationary expenditure gap, the government could attempt to bring the economy back toward the full-employment level of GDP by _______ taxes or _______ government expenditures.
increasing; increasing
increasing; decreasing
decreasing; increasing
decreasing; decreasing
What is Say鈥檚 law? How does it relate to the view held by classical economists that the economy generally will operate at a position on its production possibilities curve (Chapter 1)? Use production possibilities analysis to demonstrate Keynes鈥檚 view on this matter.
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 |
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?
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?
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