Macroeconomics + Economy 2009 Update 18th Edition by Campbell McConnell, Sean Masaki Flynn,Stanley Brue

Exercise 21

THE MULTIPLIER-CALCULATING HYPOTHETICAL CHANGES IN GDP Go to the Bureau of Economic Analysis at www.bea.gov , and use the BEA interactivity feature to select National Income and Product Account Tables. Then find Table 1.1, which contains the most recent values for GDP = C a + I g + G + ( X - M ). Assume that the MPC is.75 and that, for each of the following, the values of the initial variables are those you just discovered. Determine the new value of GDP if, other things equal, ( a ) investment increased by 5 percent, ( b ) imports increased by 5 percent while exports increased by 5 percent, ( c ) consumption increased by 5 percent, and ( d ) government spending increased by 5 percent. Which of the changes, ( a ) through ( d ), caused the greatest change in GDP in absolute dollars