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Macroeconomics 12th Edition by William Baumol,Alan Blinder
Edition 12ISBN: 978-1305033016Macroeconomics 12th Edition by William Baumol,Alan Blinder
Edition 12ISBN: 978-1305033016 Exercise 3
Return to the hypothetical economy in Test Yourself Question 1, and now suppose that both taxes and government purchases are increased by $120. Find the new equilibrium under the assumption that consumer spending continues to be exactly three-quarters of disposable income (as it is in Test Yourself Question 1).
Reference Test Yourself Question 1
Consider an economy in which tax collections are always $400 and in which the four components of aggregate demand are as follows:
Find the equilibrium of this economy graphically. What is the marginal propensity to consume? What is the multiplier? What would happen to equilibrium GDP if government purchases were reduced by $60 and the price level remained unchanged?
Reference Test Yourself Question 1
Consider an economy in which tax collections are always $400 and in which the four components of aggregate demand are as follows:
Find the equilibrium of this economy graphically. What is the marginal propensity to consume? What is the multiplier? What would happen to equilibrium GDP if government purchases were reduced by $60 and the price level remained unchanged?
Explanation
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Equilibrium level of GDP
The following ...
Macroeconomics 12th Edition by William Baumol,Alan Blinder
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