{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Practice - INCOME – EXPENDITURE

Practice - INCOME – EXPENDITURE - I NCOME...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
INCOME – EXPENDITURE: Practice Problems – Ch. 11, problems 9, 10. 9. a. GDP YD C Iplan AEplan Iunplan $0 $0 $100 $300 $400 - $400 400 400 400 300 700 - 300 800 800 700 300 1,000 - 200 1,200 1,200 1,000 300 1,300 - 100 1.600 1,600 1,300 300 1,600 0 2,000 2,000 1,600 300 1,900 + 100 2,400 2,400 1,900 300 2,200 + 200 2,800 2,800 2,200 300 2,500 + 300 3,200 3,200 2,500 300 2,800 + 400 b. Consumption function: C = A + MPC * YD. Since YD = 0 -> C = 100, we know that A = 100. MPC = C/ YD = 300/400 = ¾ = 0.75. This means that the consumption function is: C = 100 + 0.75*YD. c. Y* = GDP in equilibrium = 1,600 . That is clear from the table above. When GDP = YD = 1,600, AEplan = GDP, and there is no unplanned change in inventories. d. Multiplier = 1/(1 – MPC) = 1/(1- 0.75) = 4. e. I = - 100. We can either use the table above and insert 200 instead of 300 under Iplan, or we can use the equation for the multiplier effect: GDP = 1/(1-MPC) * I. In this case: GDP = 4 * (- 100) = -400. f. If autonomous consumer spending increases from 100 to 200, autonomous spending will increase by 100. We get the opposite multiplier effect of what we had in e. GDP = 4 * (100) = 400.
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern