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ECON 1BB3 Lecture Notes - Money Supply, Interest Rate

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crimsonsheep933
20 Sep 2012
School
McMaster University
Department
Economics
Course
ECON 1BB3
Professor
Bridget O' Shaughnessy

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ECON 1BB3 Full Course Notes
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ECON 1BB3 Full Course Notes
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Document Summary

If there is crowding out, then the multiplier would be larger than 3, so the. Mpc would be larger than the answer in part (a). Consumption would increase by 3/4 of billion, or billion (ad shifts out by billion). There is a multiplier effect here - the ad curve will shift out by billion * multiplier (which is 4) - ad shifts out by . If the government had increased spending by billion, the outward ad shift would be billion - this is because only part of a tax cut is spent, the rest is saved. If g increases, the ad curve shifts out to the right. As money demand increases due to higher income levels, the interest rate rises and there is crowding out (the. Ad curve shifts back to the left a bit).

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Related Questions

If government expenditure on goods and services increase by​ $10 billion, then aggregate demand:
 
(i) increases by​ $10 billion multiplied by the tax multiplier.
(ii) increases by​ $10 billion.
(iii) increases by​ $10 billion multiplied by the government expenditure multiplier.
(iv) decreases by​ $10 billion.
(v) decreases by​ $10 billion multiplied by the government expenditure multiplier. 

Suppose the consumption function is C = $400 billion + 0.8Y and the government wants to stimulate the economy. By how much will aggregate demand at current prices shift initially (before multiplier effects) with Instructions: Enter your response as a whole number. (a) A $50 billion increase in government purchases? $......... billion Instructions: Enter your responses rounded to one decimal place. (b) A $50 billion tax cut? $....... billion (c) A $50 billion increase in income transfers? $........ billion What will the cumulative AD shift be for (d) The increased government spending? $........ billion (e) The tax cut? $........ billion (f) The increased transfers? $......... billion

he consumption function is C = $400 billion + 0.6Y and the governement wants to stimulate the economy. By how much will aggregate demand at current prices shift initially (before multiplier effects) with:

a) a $20 billion increase in governement purchaes? ? billion

b) a $20 billion tax cut = ? billions

c) a $20 billion increase in income transfers = ? billion

What will the cumulative AD shift be for:

d) the increased govenerment spending = ? billion

e) the tax cut = ? billion

f) the increased transfers = ? billion