ASSIGNMENT 4ECO: 1001 NOTE: There are five exercises on this Assignment, which i

Question

ASSIGNMENT 4ECO: 1001 NOTE: There are five exercises on this Assignment, which is to be submitted on or before Tuesday, November 21, 2017. You are required to show computational work wherever necessary Suppose Marginal Propensity to consume equals 0.75. What would be the change in the equilibrium level of output if the Government increases its spending from $ to $460 bi? 1. 400 b 2. Suppose Marginal Propensity to Save equals 0.2. What would be the change in the equilibrium level of output if the Government increases taxes by $70 b? Refer to the graphs drawn in the following figure, and answer Q.#3 below AE (in billions ofs) AE $700 -- $600.. 45 $600 $700 Y-Real Output (in billions of S) The full employment level of this economy is $700 billion, but it is in equilibrium at $600 billion, then 3. ). What is the GDP gap? 1). What is the Recessionary gap?

Explanation / Answer

First question is answered below

1.

MPC = 0.75

Government spending multiplier = 1/(1-MPC) = 1/(1-0.75) = 1/0.25 = 4

Increase in output = 4*(460-400) = $240 billion (increase in output or GDP)

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.