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What is the marginal propensity

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Reference no: EM131354756

Question 1.

Real GDP C

IP

G

 MX
3,000 2,500

300

500

 200
4,000 3,250

300

500

 200
5,000 4,000

300

500

 200
6,000 4,750

300

500

 200
7,000 5,500

300

500

 200
8,000 6,250

300

500

 200

a. What is the marginal propensity to consume implicit in these data?

b. Plot a 45° line, and then use the data to draw an aggregate expenditure line.

c. What is the equilibrium level of real GDP? Illustrate it on your diagram.

d. Suppose that investment spending increased by 250 at each level of income. What would happen to equilibrium GDP?

Question 2.

Discuss how the Multiplier leads to closing the gap between equilibrium and full employment.

Challenge question: Discuss why the tax multiplier is different. When would this multiplier be used?

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This is small assignment of macroeconomics related to Keynesian model of Aggregate expenditure and multiplier concept. The questions are answered numerically and graphically as required.

Reference no: EM131354756

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