Reference no: EM13199421
Given the following information calculate the multiplier effect on Y, i.e. by how much does output increase or decrease by (?Y), if
HINT: Unless told otherwise, assume other factors are held constant. For example if you are told that only government spending increases or decreases, then assume that ?a = 0, ?T = 0, and ?I = 0.
(a) Government spending increases by $10, and the MPC, b = 0.5? What value (i.e., number) does the government purchases multiplier [1/(1-b)] have in this case?
(b) Government spending increases by $10, and the MPC, b = 0.9? What value (i.e., number) does the government purchases multiplier [1/(1-b)] have in this case?
(c) In which case [(a) or (b)] does government spending have more impact (if any) on the change on output, Y? What's causing the difference (if you find any)?
(d) Taxes decrease by $10, and the MPC, b = 0.90. Be very careful with this one. The tax multiplier is a little bit trickier. What value (i.e., number) does the tax multiplier have in this case?
(e) Investment decreases by $10, and the MPC, b = 0.20. What value (i.e., number) does the autonomous expenditures multiplier [1/(1-b)] have in this case?
(f) Government spending increases by $10 and investment decreases by $14, and taxes decrease by $5, and the MPC = 0.8?
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Does price level decreases or return to its starting point
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By how much does output increase or decrease
: Given the following information calculate the multiplier effect on Y, i.e. by how much does output increase or decrease by (Y), if Unless told otherwise, assume other factors are held constant. For example if you are told that only government spend..
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