Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Chapter 25.A, Problem 1DQ
To determine
Explain multiplier and marginal propensity to consume (MPC).
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1. What is meant by "autonomous consumption"?
2. Explain the consumption puzzle?
How do you calculate marginal propensity to consume and how does it effects the multiplier?
Which of the following statements best describes the multiplier effect in economics?
A. The process of reducing government spending to stimulate economic growth.
B. An increase in consumer saving when government expenditure decreases.
c. A phenomenon where an initial increase in spending leads to a more significant overall increase in
economic output.
D. The concept of a fixed relationship between inflation and unemployment rates.
Chapter 25 Solutions
Economics: Principles & Policy
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- Would each of the following lead to a decrease in national income? a. An increase in imports (Click to select) lead to a decrease in national income. b. A decrease in interest rates (Click to select) lead to a decrease in national income. c. A decrease in the money supply (Click to select) lead to a decrease in national income. d. An increase in the exchange rate (Click to select) e. A decrease in foreign incomes (Click to select) (Click to select) lead to a decrease in national income. lead to a decrease in national income. would would notarrow_forwardWhat is the relationship between the marginal propensity to consume (mpc) and the multiplier?arrow_forward30. Given this diagram; what is the mpc (marginal propensity to consume? a) 4/5 b) 20 c) – 20 d) 100 e) 5arrow_forward
- A) What is the value of the marginal propensity to consume? ( Round your answers to one decimal place). What is the value of the marginal propensity to save? B) What is the break-even level of income in the table? (Enter your answer as a whole number) What is the term that economists use for the saving situation shown at the $ 240 level of income. C) For each of the following items, indicate wheter the value in the table is either constant or variable as income changes: The MPS is (constant/ variable) as income changes. The APC is ( constant/ variable) as income changes. The MPC is ( constant/ variable) as income changes. The APS is (constant/ variable) as income chnages.arrow_forwardExplain the concept of the 100X Multiplier using the idea of diminishing marginal utility.arrow_forward1. Briefly describe the concept multiplier. 2.Briefly describe the concept extrapolation.arrow_forward
- Monica's current income went up from $100.000 to $105,000 and she increased her current consumption by $2100. What is her marginal propensity to consume?arrow_forwardc. What is meant by "autonomous consumption"? d. Explain the consumption puzzle? e. How does the Life-Cycle Hypothesis resolve the puzzle?arrow_forwardFor the multiplier to be positive what condition must be satisfied?arrow_forward
- In the goods market when C(Yd) = c0 + c1Yd, the multiplier is bigger when:A. The marginal propensity to consume (c1) is smaller.B. The marginal propensity to consume (c1) is larger.C. The exogenous component of consumption (c0) is larger.D. The exogenous component of consumption (c0) is smaller.E. None of the above.arrow_forwardWhat is the multiplier effect in economics? A. The tendency of consumers to save rather than spend B. The tendency of firms to reduce production during a recession C. The amplification of changes in spending through the economy D. The reduction of government spending to control inflationarrow_forwardConsider the graph below: Planned Aggregate Expenditure (PAE, billions of $) 1000 900 800 700 600 500 400 300 200 100 0 100 200 300 400 500 600 700 800 1 PAE 2 PAE Y PAE₁ 900 1000 Actual Aggregate Expenditure (Output or GDP, billions of $) a. What is the expenditure multiplier in this economy? b. What is the marginal propensity to consume in this economy?arrow_forward
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