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7_EconomicFluctuations_Answers

7_EconomicFluctuations_Answers - ECON 102 Winter 2008...

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ECON 102 Jooyong Jun Winter 2008 Section 102 and 103 Economic Fluctuation and Economy in the Short-Run (p.289 Q9) The following table shows the relationship between income and consumption in an economy Income (Y) (in billions of dollars) Consumption (C) (in billions of dollars) 0 10 20 30 40 50 60 70 80 90 100 5 11 17 23 29 35 41 47 53 59 65 Assume that investment (I) is $5 billion, government purchases (G) are $4 billion, and net export (X) are $2 billion. a) What is the numerical value of the MPC? For a 10 billion increase in the aggregate income, consumption increases by 6 billion. Therefore, MPC is 0.6. b) Construct a table of spending balance (see. p. 284 Table 2). What is the level of income at the point of spending balance? Real GDP Total Expenditure Consumption Investment Government Purchases Net Exports 0 10 20 30 40 50 60 70 80 90 100 16 22 28 34 40 46 52 58 64 70 76 5 11 17 23 29 35 41 47 53 59 65 5 5 5 5 5 5 5 5 5 5 5 4 4 4 4 4 4 4 4 4 4 4 2 2 2 2 2 2 2 2 2 2 2 And the equilibrium, or the point of pending balance, is at real GDP is 40.
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