128) Would a larger multiplier lead to longer and more severe recessions or shorter and less severe recessions? Briefly explain. 128) Answer: A larger multiplier would be likely to lead to longer and more severe recessions because it would magnify the impact on the economy of changes in autonomous expenditures. Diff: 2 Page Ref: 777/403 Topic: The Multiplier Effect Learning Outcome: Macro 8: Investigate the relationship between income and expenditures AACSB: Analytic Skills Table 23 - 6 Real GDP Consumption Planned Investment Government Purchases Net Exports $1,000 $1,000 $100 $150 - $50 2,000 1,900 100 150 - 50 3,000 2,800 100 150 - 50 4,000 3,700 100 150 - 50 129) Refer to Table 23 - 6. Using the table above, answer the following questions. The numbers in the table are in billions of dollars. a. What is the equilibrium level of real GDP? b. What is the MPC ? c. If potential GDP is $4,000 billion, is the economy at full employment? If not, what is the condition of the economy? d. If the economy is not at full employment, by how much should government spending increase so that the economy can move to the full employment level of GDP? 129) 34
Answer: a. Equilibrium real GDP is determined where aggregate expenditure = real GDP. The values for aggregate expenditure for each level of real GDP are given in the table below. They are found by adding together C + I + G + NX . The value where real GDP equals aggregate expenditure is $3,000 billion, and this is equilibrium.
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