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Which component of aggregate demand

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Questions

1. An American who perfectly matches the statistical average receives additional income amounting to $5,000. She spends $4,500 of it. What must be her marginal propensity to save?

2. Based on the information in part (a), calculate the tax multiplier in this economy.

3. Which component of aggregate demand will be most directly impacted by a change in the income tax rates? Explain.

4. Assume the government increases the income tax revenues by $100 billion. Based on the information in part (a), what will be the total possible change in aggregate demand, ceteris paribus?

5. Assume the government increases government spending by $200 billion. Based on the information in part (a), what will be the total possible change in aggregate demand, ceteris paribus?

6. What is the autonomous spending in the scenario from part (e)?

7. Assuming all impacts were explained directly through the multipliers, and based on the information from part (b), what would be the change in GDP that would result from the government decreasing spending by $18 billion at the same time that it decreases corporate taxes by $20 billion?

Reference no: EM133359334

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