An economy has a marginal propensity to consume of 0.5, and Y*, the income-expenditure equilibrium GDP, equals $500 billion. Given an autonomous increase in planned investment of $10 billion, answer the following questions. a. What is the value of the multiplier? Value of the multiplier =
An economy has a marginal propensity to consume of 0.5, and Y*, the income-expenditure equilibrium GDP, equals $500 billion. Given an autonomous increase in planned investment of $10 billion, answer the following questions. a. What is the value of the multiplier? Value of the multiplier =
Chapter19: The Keynesian Model In Action
Section: Chapter Questions
Problem 5SQP
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An economy has a marginal propensity to consume of 0.5, and Y*, the income-expenditure equilibrium GDP, equals $500 billion. Given an autonomous increase in planned investment of $10 billion, answer the following questions.
a. What is the value of the multiplier?
Value of the multiplier =
b. What would you expect the total change in Y* to be based on the multiplier formula?
Change in Y* based on the multiplier =
billion
c. What is the total change in real GDP after the 10 rounds?
It may be beneficial to make a table on a separate sheet of paper to calculate the change in real GDP for each of the rounds, and then add up the values.
Total change in real GDP (10 rounds) =
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