Homework #5

# 80 there would be a 40 billion change in gdp if the

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investment is increased by \$8 billion and the MPC is .80, there would be a \$40 billion change in GDP. If the MPS is .67, there will be a \$24.24 billion change in GDP. MPS Multiplier 0 None .4 2.5 .6 1.67 .1 1 MPC Multiplier 1 None .90 10 .67 3.03 .50 2 0 1 If MPC = .80 and ∆Ig =8 billion, ∆Equilibrium GDP = MULTIPLIER * ∆Ig

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∆Equilibrium GDP= 5*8 ∆Equilibrium GDP= \$40 billion If MPC = .67 and ∆ = 8 billion ∆Equilibrium GDP = multiplier *∆Ig ∆Equilibrium GDP = 3.03 * 8 ∆Equilibrium GDP = \$24.24 billion Chapter 28 pgs. 580-581 Questions #2,8,9 2. Possible Levels of Employme nt (Millions) Real Domestic Output (GDP=D I) (Billions) Consumptio n (Billions) Savings (Billions) Investmen t (Ig) Aggregat e Expenses (C+Ig) MPC MPS 40 \$ 240 \$244 \$-4 \$16 \$260 0.8 0.2 45 \$260 \$260 \$0 \$16 \$276 0.8 0.2 50 \$280 \$276 \$4 \$16 \$292 0.8 0.2 55 \$300 \$292 \$8 \$16 \$308 0.8 0.2 60 \$320 \$308 \$12 \$16 \$324 0.8 0.2 65 \$340 \$324 \$16 \$16 \$340 0.8 0.2 70 \$360 \$340 \$20 \$16 \$356 0.8 0.2 75 \$380 \$356 \$24 \$16 \$372 0.8 0.2
80 \$400 \$372 \$28 \$16 \$388 0.8 0.2 The Equilibrium level of output and employment in this private economy is at \$340 billion, where Real GDP=AE a. State at the GDP level of \$300 billion, the total amount of actual investment, planned investment and unplanned investment. At the \$300 billion level of GDP, saving _ \$8 billion; Planned investment = \$16 billion (from the table). Unplanned investment = \$ 8 billion, as a result of the excess of \$8 billion of planned investment. Actual investment is \$8 billion (= \$16 billion of planned investment minus \$8 billion of unplanned investment) matching the actual of \$8 billion. b. State at the GDP level of \$380 billion, the total amount of actual investment, planned investment and unplanned investment. At the \$380 billion level of GDP, saving _ \$24 billion; Planned investment = \$16 billion (from the table). Unplanned = \$8 billion caused by the deficiency of \$ 8 billion of planned investment Actual investment = \$24 billion (=\$16 billion of planned investment plus \$8 billion of unplanned

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