- Small Imaginary Economy 1 (230.14 KiB) Viewed 33 times
Small imaginary economy
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Small imaginary economy
Small imaginary economy
Question 51 (25 points) 1) Listen Scenario 34-1. Take the following information as given for a small, imaginary economy: • When income is $10,000, consumption spending is $6,500. • When income is $11,000, consumption spending is $7,250. Refer to Scenario 34-1 to answer the following questions. (a). Considering that the marginal propensity to consume (MPC) is the change in consumption divided by the change in income, calculate the MPC for this economy using the information above. Show all working. [8 points] (b). Given the MPC you calculated in part (a), calculate the multiplier for this economy. Show all working. [4 points] (c). Suppose the government of this economy increases its spending by $200. What would the increase in aggregate demand be? Show all working. [6 points] (d). What if instead of $200, the government of this economy increases its spending by $500. What would the increase in aggregate demand be? Show all working. [6 points] (e). Explain the crowding out effect. How can an increase in government spending lead to a fall in aggregate demand? [1 point]
Question 51 (25 points) 1) Listen Scenario 34-1. Take the following information as given for a small, imaginary economy: • When income is $10,000, consumption spending is $6,500. • When income is $11,000, consumption spending is $7,250. Refer to Scenario 34-1 to answer the following questions. (a). Considering that the marginal propensity to consume (MPC) is the change in consumption divided by the change in income, calculate the MPC for this economy using the information above. Show all working. [8 points] (b). Given the MPC you calculated in part (a), calculate the multiplier for this economy. Show all working. [4 points] (c). Suppose the government of this economy increases its spending by $200. What would the increase in aggregate demand be? Show all working. [6 points] (d). What if instead of $200, the government of this economy increases its spending by $500. What would the increase in aggregate demand be? Show all working. [6 points] (e). Explain the crowding out effect. How can an increase in government spending lead to a fall in aggregate demand? [1 point]