Consider the Following Multiplier Model Diagram

Question

Examlex · Accepted Answer

The Answer is (a)Find equilibrium income using the multiplier equation: Y = Multiplier × Autonomous Expenditures = 1/(1 - mpe)× AE₀ = 1/(1 - 0.8)× 2,200 = 11,000.(b)

(a)Find equilibrium income using the multiplier equation: Y = Multiplier × Autonomous Expenditures = 1/(1 - mpe)× AE<sub>0</sub> = 1/(1 - 0.8)× 2,200 = 11,000.(b) The decrease in exports will shift the AE down to AE = 2,150 + 0.8Y.This results in a change in equilibrium from point A to point B.At point B the new equilibrium is Y = 10,750.This is calculated using the multiplier equation as Y = 5 × 2,150.(c)The reason that the change in income is greater than the change in exports is due to the impact of the multiplier; this is the multiplier effect in action.

The decrease in exports will shift the AE down to AE = 2,150 + 0.8Y.This results in a change in equilibrium from point A to point B.At point B the new equilibrium is Y = 10,750.This is calculated using the multiplier equation as Y = 5 × 2,150.(c)The reason that the change in income is greater than the change in exports is due to the impact of the multiplier; this is the multiplier effect in action.

Consider the Following Multiplier Model Diagram

Essay

Correct Answer:
Verified

Consider the Following Multiplier Model Diagram

Essay

Correct Answer:VerifiedShow Answer

Correct Answer:
Verified