Question Details

[solution]: ECN 211 - HW#5 (15 points) Ch. 14 Part 1: Questions for review


Answer download
More Details:

I need help!

I attached my homework I am working on right now and need help after the first 7 questions.


ECN 211 - HW#5 (15 points)

 

Ch. 14

 


 

Part 1: Questions for review Ch. 14: the aggregate expenditure model - (1pt each):

 

1. a) Consumption expenditure is the expenditure by households on consumption of goods and services. The main

 

factors that help influence consumption expenditure include; disposable income, real interest rate, wealth, and

 

expected future income. I found that list in the book, page 351. I also saw in your lecture notes you listed; consumer

 

spending, gross private domestic investment spending, and net exports. I believe you wanted the list given in your

 

lecture notes.

 

b) A fall in the interest rate or an increase in either wealth of expected future income increases consumption

 

expenditure and shifts the function up.

 

2. A) Marginal Propensity to Consume is the fraction of a change in disposable income that is spent on consumption.

 

B) MPC = Change in consumption expenditure

 

Change in disposable income

 

3. In the definition of the MPC, it states that it is a fraction. This means that the MPC will stay under one.

 

( I tried finding this more in depth in the book and couldn?t seem to figure it out, not sure if it is the correct answer)

 

4. A) Induced expenditure equals consumption expenditure minus imports; it also increases as real GDP increases.

 

Autonomous expenditure is expenditure that does not respond directly to changes in the real GDP.

 

B) Autonomous expenditure components include investment, government expenditure on goods and services,

 

exports, and autonomous consumption expenditure. Induced expenditure does vary when it comes to the real GDP,

 

the components of induced expenditure are imports and consumption expenditure.

 

5. A) An aggregate expenditure schedule and an aggregate expenditure curve describe the relationship between

 

aggregate planned expenditure and the real GDP. Aggregate planned expenditure increases as real GDP increase.

 

B) When aggregate planned expenditure exceeds real GDP; an unplanned decrease in inventories occurs. Firms

 

increase production, and real GDP increases. When real GDP exceeds aggregate planned expenditure, an unplanned

 

increase in inventories occurs. Firms decrease production, and real GDP decreases.

 

6. A) In Say?s book, he explains that supply creates its own demand. This idea soon became Say?s Law. His work is

 

shown when the economy is at full-employment. When the Great Depression occurred, Say?s law became under

 

attacked. It seemed as if supply didn?t create its own demand, but there was nothing to compare his law too. John

 

Keynes, in the middle of the Great Depression, created effective demand. Keynes turned Say?s Law around. He

 

determined that supply does not create its own demand, and effective demand determines real GDP

 

B) Keynes believed if businesses spend less on the new capital than the amount that people save, equilibrium

 

expenditure will be less than potential GDP. Say?s believed the real wage rate adjusts to ensure that the quantity of

 

labor demanded equals the quantity of labor supplied and real GDP equals potential GDP. The real interest rate

 

adjusts to ensure that the quantity of investment that firms plan equals the quantity of saving. Because saving equals

 

income minus the consumption expenditure plus investment exactly equals the potential GDP.

 

7. A) The basic idea of the multiplier; an increase in investment increases real GDP, which increases disposable income

 

and consumption expenditure. The increase in consumption expenditure adds to the increase in investment and a

 

multiplier determines the magnitude of the resulting increase in aggregate expenditure.

 

B) When imports and income taxes are ignored, the magnitude of the multiplier solely depends on the MPC. The

 

greater the MPC, the larger is the multiplier.

 


 

Part 2: Application problems; ch. 14 - (1pt each, unless noted otherwise):

 

1. Suppose you are given the following information for the economy of New New York:

 

Disposable Income

 

(DI)

 

$0

 

$100

 

$200

 

$300

 


 

Consumption

 

Spending (C)

 

$20

 

$110

 

$200

 

$290

 


 

Savings (S)

 


 

ECN 211 - HW#5 (15 points)

 

Ch. 14

 

$400

 

$500

 


 

$380

 

$470

 


 

Please calculate the following based on the above table:

 

a. What is the level of savings (S) when disposable income (DI) is $400?

 

b. What is the marginal propensity to consume (MPC) for New New York. Make sure to show your work

 

and write down any formulas you used.

 

2. Shifts in the consumption function. For each of the following, state whether there would be:

 

a. There is an increase in real interest rates. This would cause a downward shift. This shift occurs during a

 

recession if a stock market crash decreases wealth and expected future income decreases.

 

b. Consumers expect to have more income in the future. This would cause an upward shift. This is because

 

there is an expansion in the business cycle.

 

c. There is increase in households? stock portfolio balances (i.e. wealth). This would also cause an upward

 

shift.

 

3. Shifts in the aggregate expenditure (AE) function. For each of the following, state whether there would be:

 

an increase in AE in Springfield (i.e. shift Springfield?s AE function UP), or

 

a decrease in AE in Springfield (i.e. shift Springfield?s AE function DOWN).

 

Also, provide a brief explanation for each answer.

 

a. There is a decrease in real interest rates.

 

b. There is a recession in Shelbyville (one of Springfield?s major trading partners), reducing the incomes of

 

people in Shelbyville.

 

c. Springfield?s government decides to increase government spending on Springfield?s crumbling

 

infrastructure and public school system.

 

4. The AE function: The below figure shows the AE curve and 45° line for an economy.

 


 

a. What is the equilibrium level of expenditure?

 

b. If real GDP equals $10 trillion (and planned AE is $12.5 trillion), what would be the amount of the unplanned

 

change to inventories? Would firms have an incentive to increase or decrease production? Why?

 

c. If real GDP equals $20 trillion (and planned AE is $17.5 trillion), what would be the amount of the unplanned

 

change to inventories? Would firms have an incentive to increase or decrease production? Why?

 


 

ECN 211 - HW#5 (15 points)

 

Ch. 14

 


 

5. Calculating the simple spending multiplier:

 

a. Suppose that MPC = 0.5 Please calculate the spending multiplier. You must write down the appropriate

 

formula and show all of your work.

 

b. Suppose that MPC = 0.8 Please calculate the spending multiplier. You must write down the appropriate

 

formula and show all of your work.

 

6. Using the multiplier:

 

a. Suppose in Illiniland, the spending multiplier is 3. By how much would aggregate expenditures (AE) need to

 

change in order to create a $1,200,000 decrease in equilibrium real GDP? Write down the appropriate formula

 

and show all of your work. In your answer, be sure to indicate whether the change in AE is a(n)

 

increase or decrease.

 

b. In North Haverbrook, suppose that when AE increases by $56,000, this causes equilibrium real GDP to increase

 

by $336,000. What is the value of the spending multiplier? Write down the appropriate formula and show all

 

of your work.

 


 

7. Below is the relevant data for the economy of ItchyandScratchyland (2pts total)

 

DI = GDP

 


 

Consumption (C)

 


 

Investment

 

(I)

 


 

Government

 

(G)

 


 

Net Exports

 


 

Planned AE

 


 

(X-M)

 


 

$0

 


 

$150

 


 

$300

 


 

$850

 


 

-$300

 


 

$2,000

 


 

$1,650

 


 

$300

 


 

$850

 


 

-$300

 


 

$4,000

 


 

$3,150

 


 

$300

 


 

$850

 


 

-$300

 


 

$6,000

 


 

$4,650

 


 

$300

 


 

$850

 


 

-$300

 


 

$8,000

 


 

$6,150

 


 

$300

 


 

$850

 


 

-$300

 


 

$10,000

 


 

$7,650

 


 

$300

 


 

$850

 


 

-$300

 


 

Unplanned change

 

to inventory

 


 

a. For this economy:

 

i. What is the level of equilibrium real GDP?

 

ii. Calculate the MPC. Show your work.

 

iii. Calculate the value of the spending multiplier. Show your work.

 

b. Suppose that the President of ItchyandScratchyland, Roger Meyers, Jr., decided to increase government

 

spending by $500.

 

i.

 

By how much would equilibrium real GDP change as a result of this change in spending

 

(also indicate increase or decrease)? Show your work.

 

ii.

 

What would be the new level of equilibrium real GDP? Show your work.

 


 

Want extra practice? Yes! Try #1-8 on pg. 370 and #1-6, and 9 on pg. 371

 


 

 


Solution details:
STATUS
Answered
QUALITY
Approved
ANSWER RATING

This question was answered on: Dec 18, 2020

PRICE: $18.50

Solution~00031148083946.zip (25.37 KB)

Buy this answer for only: $18.50

This attachment is locked

We have a ready expert answer for this paper which you can use for in-depth understanding, research editing or paraphrasing. You can buy it or order for a fresh, original and plagiarism-free copy (Deadline assured. Flexible pricing. TurnItIn Report provided)

Pay using PayPal (No PayPal account Required) or your credit card . All your purchases are securely protected by .
SiteLock

About this Question

STATUS

Answered

QUALITY

Approved

DATE ANSWERED

Dec 18, 2020

EXPERT

Tutor

ANSWER RATING

GET INSTANT HELP/h4>

We have top-notch tutors who can do your essay/homework for you at a reasonable cost and then you can simply use that essay as a template to build your own arguments.

You can also use these solutions:

  • As a reference for in-depth understanding of the subject.
  • As a source of ideas / reasoning for your own research (if properly referenced)
  • For editing and paraphrasing (check your institution's definition of plagiarism and recommended paraphrase).
This we believe is a better way of understanding a problem and makes use of the efficiency of time of the student.

NEW ASSIGNMENT HELP?

Order New Solution. Quick Turnaround

Click on the button below in order to Order for a New, Original and High-Quality Essay Solutions. New orders are original solutions and precise to your writing instruction requirements. Place a New Order using the button below.

WE GUARANTEE, THAT YOUR PAPER WILL BE WRITTEN FROM SCRATCH AND WITHIN YOUR SET DEADLINE.

Order Now