ASSIGNMENT 4ECO: 1001 NOTE: There are five exercises on this Assignment, which i

Question

ASSIGNMENT 4ECO: 1001 NOTE: There are five exercises on this Assignment, which is to be submitted on or before Tuesday, November 21, 2017. You are required to show computational work wherever necessary. Suppose Marginal Propensity to consume equals 0.75. What would be the change in the equilibrium level of output if the Government increases its spending from $400 b to $460 b? 1. 2. Suppose Marginal Propensity to Save equals 0.2. What would be the change in the equilibrium level of output if the Government increases taxes by $70 b? Refer to the graphs drawn in the following flgure, and answer Q.43 below AE (in billions ofs) AE $700 $600--.. 45 $600 $700 Y-Real Output (in billions of S) 3. The full employment level of this economy is $700 billion, but it is in equilibrium at $600 billion, then ). What is the GDP gap? 1). What is the Recessionary gap?

Explanation / Answer

1) MPC = 0.75

government spending increases to $460 billion .

Multiplier = 1/1-MPC

= 1/1-0.75 = 4

sp equilbruim level of output = 460 * 4 = $1840

so, equilbruim level of output will increased to $1840 billion .

2 ) please upload it again. its against chegg policy.

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