The graph below shows the aggregate expenditures schedule for a nation that just
ID: 1221788 • Letter: T
Question
The graph below shows the aggregate expenditures schedule for a nation that just experienced an increase in gross investment (I), government purchases (G), and/or net exports (NX).
Using the information in the graph above, answer the following questions:
a. How much do expenditures increase by after the economy experiences this change?
$________
b. How much does equilibrium real GDP (Y) increase by after the economy experiences this change?
$_________
c. What is the value of the multiplier and the marginal propensity to consume (MPC) for this nation?
Instructions: Round your answers to 2 decimal places.
Multiplier: _________
MPC: _________
Explanation / Answer
a.
Increase in the expenditures after the economy experiences this change:
23,000 – 21,000 = 2000
b.
Increase in the equilibrium real GDP (Y) after the economy experiences this change:
29,000 – 23,000 = 6,000
c.
The marginal propensity to consume (MPC) for this nation:
MPC = 2,000 ÷ 6000 = 0.33
The multiplier for this nation:
Multiplier = 1 ÷ (1 – MPC) = 1 ÷ (1 – 0.33) = 1 ÷ 0.67 = 1.492537
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