posted by Amber on .
Assume the simple spending multiplier
equals 10. Determine the size and direction of any changes in the
aggregate expenditure line, real GDP demanded, and the aggregate
demand curve for each of the following changes in spending:
a. Spending rises by $8 billion at each income level.
b. Spending falls by $5 billion at each income level.
c. Spending rises by $20 billion at each income level.
Use the multiplier. a) 8*10=80, b) -5*10=-50 and c) 20*10=200
Again, Am I missing something, some part of the problem, here?
(Simple Spending Multiplier) Suppose that the MPC is 0.8, while investment, government purchases, and net exports sum to $500 billion. Suppose also that the government budget is in balance. a. What is the sum of saving and net taxes when desired spending equals real GDP? Explain. b. What is the value of the multiplier? c. Explain why the multiplier is related to the slope of the consumption function. Totally lost on how to figure this out. I think with an MPC of .8 the multiplier is 5, but I don't know where to go from there. Anjaree, thanks, but that much I knew. I don't know how to turn that knowledge into the answers.
Asked by Bruce Teague - Mon Jul 11 06:13:11 2011 - Economics - 2 Answers - Comments
A. The slope of the consumption function is MPC=0.8.Multiplier=1/1-MPC. Must I say that he slope of the consumption function is positively correlated with the multiplier.High MPC,high multiplier effects.