a. Suppose gross investment decreases by $2,000. Use the graph to show what happens to the equilibrium level of output (real GDP). Instructions: Drag the line "AE" from its original location to its new location after the increase in gross investment. Indicate the new equilibrium level of output by dragging the equilibrium point from its original location to its new location corresponding to the new "AE" line. Equilibrium Dynamics Aggregate Expenditures (dollars) 16,000 14,000 T 12,000 10,000 8,000 6,000 4,000 2,000 o $ Oy 0y O "?0 T ?0 q'o > v % % Y % Y Real GDP (dollars) Instructions: In parts b, round your answer to two decimal places. In part , enter your answers for output as a whole number and the multiplier effect to two decimal places. b. What is the marginal propensity to consume (the slope of the AE line)? c. Using the graph, determine the equilibrium level of output before and after the $2,000 decrease in gross investment. Before: $ After: $ This suggests a multiplier effect of 2 points eBook D References Suppose a country's MPC is 0.8, and in this country, government seeks to boost real GDP by either increasing government purchases by %50 billion or by reducing taxes by the same amount. Instructions: For changes in real GDP enter your answer as a whole number. Round your answer two decimal places for multipliers. If you are entering a negative number include a minus sign. a. If it increases government purchases, real GDP will increase by $ billion, suggesting an expenditures multiplier of If the government instead lowers taxes, real GDP will increase by $ billion, suggesting a tax multiplier of b. Now suppose another country's MPC is 0.6, and in this country, government seeks to reduce real GDP by either decreasing government purchases by $50 billion or by raising taxes by the same amount. If it decreases government purchases, real GDP will decrease by $ billion, suggesting an expenditures multiplier of If the government instead raises taxes, real GDP will decrease by $ billion, suggesting a tax multiplier of c. Which of the following statements best explains the difference in magnitude of the multiplier effects between the expenditures multiplier and the tax multiplier? O The multiplier effect is exactly the same since both involve government policy. O The tax multiplier is smaller since all governments inevitably spend more than they say they will. O The tax multiplier is larger since households spend more and spend better than governments do. O The tax multiplier is smaller since some of the extra disposable income is saved with a tax cut