Practice on the Multiplier Enter the values on Canvas of the following multipliers if 1. mpc = 0.8; t= 0.25 2. mpc = 0.625; t = 0.4 3. mpc = 0.8; t=0.375 The Multiplier in the Keynesian Model Questions 4 through 10 use the following information Suppose C = A +0.75*DI and DI = 0.8*Y + TR 4. The marginal propensity to consume (mpc) in this economy is [HINT: Don't remember how to get mpc and t from these equations? Look at Problem Set 6 questions 5 and 6)] (a) 0.7 (b) 0.75 (c) 0.8 (d) cannot be determined 5. The tax rate (t) in this economy is (a) 0.2 (c) 0.25 (b) 0.8 (d) cannot be determined Suppose that net exports (NX) in this economy rise by 1500 due to a boom experienced by one of our main trade partners. Assume the economy behaves as in the Keynesian model covered in class. 6. How much will equilibrium output (YEQ) change? (i.e., find AY) (a) 3750 (b) 1500 (c) 1764.7 (d) 75007. How much will aggregate demand (AD) change in equilibrium? (i.e., find AAD) (a) 3750 (b) 1500 (c) 1764.7 (d) 7500 8. Which components of aggregate demand (AD)-C, I, G, and/or NX-increase as a response to the shock from question 6, and by how much? (a) NX increases by 1500 (b) C increases by 2250 c) NX increases by 1500 and C, I, and G increase by some undetermined amount (d) Both (a) and (b) are right 9. Does output (Y) in question 6 rise by more than 1500? (a) No, 1500 is the size of the shock - output will increase by the same amount at which NX increases (b) Yes, the initial increase in output produces a rise in disposable income and therefore consumption, which in turn triggers new waves of raises in aggregate demand and output (c) Yes, the increase in net exports increases confidence in the future (d) Yes, because both investment and government spending are increasing as well 10. Why doesn't output (Y) rise by infinity in this example? (a) Because it's impossible to produce infinity (b) Because the tax rate (t) increases (c) Because people pay taxes and save, and both reduce the amount of income each time demand gets recycled (d) Because demand increases only by 1500