The graph below depicts the economy in equilibrium at AE4. Aggregate Expenditures (billions of dollars) Equilibrium Dynamics B B 850 % 0 8 % 5 0 5 B, Real GDP (billions of dollars) Instructions: Enter your answers as a whole number. a. What is the equilibrium level of output at AE(7 $ 200 billion Instructions: Enter your answers as a whole number. a. What is the equilibrium level of cutput at AE{? $ 200] billion The economy experiences an increase in investment of $150 billion, shifting aggregate expenditures to AE3. b. At initial equilibrium output level, the increase in investment will result in what amount of aggregate expenditures? $ 150| billion c. The increase in aggregate expenditures will cause an increase in output (income). By how much will output increase due to the additional income generated from the increased investment? $ billion d. The increase in income will lead to an additional increase in expenditures. By how much will expenditures increase due to the increase in income previously calculated? $ billion e. This process will continue until reaching the final equilibrium. What is the equilibrium output when aggregate expenditures are AEZ7 g |b| ion Imagine an isolated economy made up of individuals who are both consumers and sellers. The table below tracks the income and spending of a small part of this economy: 8 individuals called A through H. Naturally, the whole economy includes additional people. Assume that individual A has just decided to spend $10,000 in a store owned by individual B and that individual B, along with everyone else in this economy, has a marginal propensity to consume (MPC) of 0.75. Instructions: Round your answers to two decimal places. a. Assume that every individual who receives additional income will spend an additional amount according to his or her MPC. Use this information to complete the table below. Calculating the Expenditures Multiplier Extra Income Individual (dollars) Extra Expenditure (dollars) .~ - 1 = sieeee | e T weee [T o] | | [ e[ e b. What is the cumulative expenditure for individuals A through H? s ] c. Using the MPC value for this economy, what is the expenditures multiplier? [ ] d. Using the expenditures multiplier computed above, what is the total increase in real GDP from the additional $10,000 worth of expenditure? S ] 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. Ifit 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 T 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 hillion 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 I c. Which of the following statements best explains the difference in magnitude of the multiplier effects between the expenditures multiplier and the tax multiplier? ) The tax multiplier is larger since households spend more and OO0 O spend better than governments do. ) The tax multiplier is smaller since some of the exira disposable income is saved with a tax cut. ) The tax multiplier is smaller since all governments inevitably spend more than they say they will. The multiplier effect is exactly the same since both involve government policy. Your research into a nation has yielded the following information: Autonomous expenditure (A) = $3,000 Gross investment (() = $2,000 Government purchases (G) = $2,500 Net exports (NX) = -$1,000 Taxes (T) = $2,000 MPC = 0.75 Instructions: Round your answers to nearest whole number. For the coefficient to Y, round your answer to two decimal places. a. Substitute the values above into the equation: AE = A + [MPC * (Y - T)]+ |+ G + NX to determine the abbreviated equation for aggregate expenditures (AE). AE = b. Using the abbreviated equation you computed in part a, complete the table below. Aggregate Real GDP Expenditures (Y) (AE) (dollars) (dollars) 0 $ 6, 090 16, 090 24, 090 c. Knowing that AE = Y at the equilibrium level of output, what is the equilibrium level of output for this nation? Ye: $ d. What is the expenditures multiplier for this economy? e. If government purchases increase by $1,000, from $2,500 to $3,500, what is the new equilibrium level of output? Ye: $1