Calculate the resulting change in GDP for each of the following MPCs when the government decreases taxes by $325 billion (change in taxes equals -$325 billion) Instructions: Round your answers to one decimal place.
a. The marginal propensity to consume (MPC) = 0.2. The change in GDP is $ billion.
b. The marginal propensity to consume (MPC) = 0.5. The change in GDP is $ billion.
c. The marginal propensity to consume (MPC) = 0.8. The change in GDP is $ billion.
Calculate the resulting change in GDP for each of the following MPCs when the government decreases taxes by $325 billion (change in taxes equals -$325 billion) Instructions: Round your answers to one decimal place.
a. The marginal propensity to consume (MPC) = 0.2. The change in GDP is $ billion.
b. The marginal propensity to consume (MPC) = 0.5. The change in GDP is $ billion.
c. The marginal propensity to consume (MPC) = 0.8. The change in GDP is $ billion.
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Related questions
Question 1
Which of the following describes the relationship between the change in inventories and aggregate expenditure?
| A. | Aggregate expenditure equals the change in inventories minus GDP. |
| B. | The change in inventories equals GDP divided by aggregate expenditures. |
| C. | Aggregate expenditures equals GDP divided by the change in inventories. |
| D. | Aggregate expenditures equals GDP minus the change in inventories. |
| E. | The change in inventories equals GDP multiplied by aggregate expenditure. |
1 points
Question 2
Suppose the marginal propensity to consume is 0.80 and taxes decrease by $10 billion. Which of the following is true?
| A. | Disposable income and consumption fall by $10 billion |
| B. | Disposable income and consumption rise by $10 billion |
| C. | Disposable income rises by $10 billion and consumption rises by $8 billion |
| D. | Disposable income falls by $10 billion and consumption falls by $8 billion |
| E. | Disposable income rises by $10 billion and consumption falls by $8 billion |
1 points
Question 3
If aggregate expenditure at a particular level of income is less than output,
| A. | output will increase |
| B. | output will decrease |
| C. | output will remain the same |
| D. | output will rise slightly and then level off |
| E. | we cannot determine what will happen to output |
1 points
Question 4
The consumption function
| A. | illustrates the relationship between real disposable income and real consumption spending |
| B. | illustrates the relationship between the price level and real consumption spending |
| C. | is the relationship between productivity and real consumption spending |
| D. | shows how real consumption increases when real disposable income decreases |
| E. | illustrates the relationship between real consumption spending and employment |
1 points
Question 5
The focus of the short-run macro model is on the role of
| A. | spending in explaining economic fluctuations |
| B. | labor in explaining economic fluctuations |
| C. | financial markets in explaining economic fluctuations |
| D. | output in explaining economic fluctuations |
| E. | resources in explaining economic fluctuations. |
1 points
Question 6
If the output level is such that the aggregate expenditure line lies below the 45-degree line, which of the following is true?
| A. | Aggregate expenditure is greater than output, so inventories will increase and output will be raised. |
| B. | Aggregate expenditure is greater than output, so inventories will decrease and output will be increased. |
| C. | Aggregate expenditure is less than output, so inventories will decrease and output will be raised. |
| D. | Aggregate expenditure is less than output, so inventories will increase and output will be lowered. |
| E. | Aggregate expenditure is greater than output, so inventories will increase and output will be lowered. |
1 points
Question 7
If the marginal propensity to consume is 0.7, the expenditure multiplier is
| A. | 7.0 |
| B. | 0.7 |
| C. | 3.0 |
| D. | 3.3 |
| E. | not determinable without additional information. |
1 points
Question 8
Aggregate expenditure is the sum of
| A. | all types of spending by households and firms |
| B. | spending and savings by households |
| C. | spending by households and governments on final goods and services |
| D. | spending by households, government, firms, and foreigners on final goods and services |
| E. | all spending and saving by households, firms, and governments |
1 points
Question 9
If the marginal propensity to consume is 0.5 and disposable income increases by $10,000, by how much will consumption spending increase?
| A. | $10,000 |
| B. | $500 |
| C. | $50 |
| D. | $5,000 |
| E. | $9,524 |
1 points
Question 10
When real consumption expenditure is plotted against real disposable income the resulting relationship is
| A. | very weak. |
| B. | virtually flat . |
| C. | positive and very close to linear. |
| D. | negative and very close to linear. |
The following table is a consumption schedule. Assume taxes and transfer payments are zero and that all saving is personal saving.
|
(GDP = DI) |
C |
S |
APC |
APS |
|
$1,500 |
$1,540 |
$_____ |
1.027 |
ā0.027 |
|
$1,600 |
$1,620 |
_____ |
1.013 |
ā0.013 |
|
$1,700 |
$1,700 |
_____ |
_____ |
_____ |
|
$1,800 |
$1,780 |
_____ |
0.989 |
0.011 |
|
$1,900 |
$1,860 |
_____ |
0.979 |
0.021 |
|
$2,000 |
$1,940 |
_____ |
_____ |
_____ |
|
$2,100 |
$2,020 |
_____ |
0.962 |
0.038 |
|
$2,200 |
$2,100 |
_____ |
_____ |
_____ |
Compute saving at each of the eight levels of disposable income and the missing average propensities to consume and to save.
1. The break-even level of disposable income is $________.
2. As disposable income rises, the marginal propensity to consume remains constant. Between each two GDPs the MPC can be found by dividing $________ by $________, and is equal to _______.
3. The marginal propensity to save also remains constant when the GDP rises. Between each two GDPs the MPS is equal to $________ divided by $________, or to _______.
