Assume that the economy is at full employment equilibrium at point A. Illustrate in the following graph the impact of a sudden decline in consumer confidence that reduces autonomous consumption by $100 billion at the price level PF. Assume MPC = 0.5. (a) What is the new equilibrium level of real output? (Don’t forget the multiplier.) (b) How large is the real GDP gap?

Assume that the economy is at full employment equilibrium at point A. Illustrate in the following graph the impact of a sudden decline in consumer confidence that reduces autonomous consumption by $100 billion at the price level PF. Assume MPC = 0.5. (a) What is the new equilibrium level of real output? (Don’t forget the multiplier.) (b) How large is the real GDP gap?

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section9.A: The Simple Algebra Of Income Determination And The Multiplier

Problem 4TY

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