Research by a team of expert economists has uncovered the consumption and import

Question

Research by a team of expert economists has uncovered the consumption and import functions and produced a forecast of planned investment and exports for the economy of Happydale as reported below Exports X 75 75 75 75 75 75 75 75 75 75 75 75 75 Real GDP Y 100 200 300 400 500 600 700 800 900 1,000 1,100 1,200 Consumption C 100 170 240 310 380 450 520 590 660 730 800 870 940 100 100 100 100 100 100 100 100 100 100 100 100 100 mports IM 25 45 65 85 105 125 145 165 185 205 225 245 265 a) What equilibrium real GDP would Happydale produce? Equilibrium real GDP: 0 b) What are the marginal propensities to consume and import in Happydale Note: Keep as much precision as possible during your calculations. Your final answer should be accurate to at least two decimal places Marginal propensity to consume: 0 0 Marginal propensity to import: c) What is the size of the multiplier? Note: Keep as much precision as possible during your calculations. Your final answer should be accurate to at least two decimal places Size of the multiplier: 0

Explanation / Answer

A. Equilibrium real GDP = 500 becasue Real GDP = Aggregate expenditure at $ 500.

B. MPC = Change in Consumption / Change in real Y = 0.7

MPM = 0.2

c. Multiplier = 1 / 1- MPC = 1/ 1-0.7

M = 1/0.3 = 3.33

d. If actual GDP = 700, AE = 600 from the table.

Inventories are increased when actual GDP is more than Aggregate expenditure.

Unplanned investment = GDP Gap = 100

Total or actual investement = 100 + 100 = 200

Y C I X M C+I+(X-M) MPC = dC/dY MPM=dM/dY 100 100 75 25 250 170 100 75 45 300 0.7 0.2 240 100 75 65 350 0.7 0.2 310 100 75 85 400 0.7 0.2 380 100 75 105 450 0.7 0.2 500 450 100 75 125 500 0.7 0.2 520 100 75 145 550 0.7 0.2 700 590 100 75 165 600 0.7 0.2 660 100 75 185 650 0.7 0.2 730 100 75 205 700 0.7 0.2 800 100 75 225 750 0.7 0.2 870 100 75 245 800 0.7 0.2 940 100 75 265 850 0.7 0.2

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

---

---

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