Chapter 11, The Multiplier Model Video Solutions, Macroeconomics

Problem 1

When is the multiplier model more appropriate: for small or large changes in aggregate demand? LO1

Check back soon!

01:24

Problem 2

What are induced and autonomous expenditures at point A in the graph below? LO1
(GRAPH CANT COPY)

Kaylee Mcclellan

Numerade Educator

00:26

Problem 3

If planned expenditures are below actual production, what will happen to income? Explain the process by which this happens. LO2

Jennifer Stoner

Numerade Educator

02:27

Problem 4

Are inventories building up at levels of output above or below equilibrium output? Explain your answer. $\mathrm{LO} 2$

Kaylee Mcclellan

Numerade Educator

01:52

Problem 5

What happens to the aggregate expenditures curve when autonomous expenditures fall? LO2

Kaylee Mcclellan

Numerade Educator

02:16

Problem 6

What happens to equilibrium income when the marginal propensity to expend rises? LO2

Pragya Ahuja

Numerade Educator

11:41

Problem 7

What is equilibrium income if the aggregate expenditures function is $\mathrm{AE}=300+.4 \mathrm{Y}$ ? LO3

Md.Daniyal Arshad

Numerade Educator

Problem 8

The marginal propensity to expend is .8. Autonomous expenditures are $$\$ 4,200$$. What is the level of equilibrium income in the economy? Demonstrate graphically. LO3

Check back soon!

Problem 9

The marginal propensity to expend is .66 and autonomous expenditures have just fallen by $$\$ 20$$.
a. What will likely happen to equilibrium income?
b. Demonstrate graphically. LO3

Check back soon!

Problem 10

If withdrawals were instantaneously translated into expenditures, what would be the multiplier's size? What would be the level of autonomous expenditures? LO4

Check back soon!

Congratulations. You've been appointed economic adviser to Happyland. Your research assistant says the country's mpe is .8 and autonomous expenditures have just risen by $$\$ 20$$.
a. What will happen to income?
b. Your research assistant comes in and says he's sorry but the mpe wasn't .8; it was .5. How does your answer change?
c. He runs in again and says exports have fallen by $$\$ 10$$ and investment has risen by $$\$ 10$$. How does your answer change?
d. You now have to present your analysis to the president, who wants to see it all graphically. Naturally you oblige. $\mathrm{LO} 2, \mathrm{LO} 3, \mathrm{LO} 4$

Check back soon!

06:12

Problem 12

Congratulations again. You've just been appointed economic adviser to Examland. The mpe is .6; autonomous investment is $$\$ 1,000$$; autonomous government spending is $$\$ 8,000$$; autonomous consumption is $$\$ 10,000$$; and autonomous net exports are $$\$ 1,000$$.
a. What is the equilibrium level of income in the country?
b. Autonomous net exports increase by $$\$ 2,000$$. What will happen to income?
c. What will happen to unemployment? (Remember Okun's rule of thumb.)
d. You've just learned the mpe changed from .6 to .5 . How will this information change your answers in $a, b$, and $c$ ? $\mathrm{LO}_2, \mathrm{LO} 3, \mathrm{LO} 4$

Oluwadamilola Ameobi

Numerade Educator

02:35

Problem 13

What forces could cause shocks to aggregate expenditures? LO5

Xiaomin Bian

Numerade Educator

01:10

Problem 14

The marginal propensity to expend is 5 and there is a recessionary gap of $$\$ 200$$. What fiscal policy would you recommend? LO5

Andrew Davis

Numerade Educator

Problem 15

Why does cutting taxes by $$\$ 100$$ have a smaller effect on GDP than increasing expenditures by $$\$ 100$$ ? LO5

Check back soon!

View

Problem 16

In 1992, as President George H. W. Bush was running (unsuccessfully) for reelection, the economy slowed down; then in late 1993, after President Bill Clinton's election, the economy picked up steam.
a. Demonstrate graphically with the multiplier model a shift in the AE curve that would have caused the slowdown.
b. Demonstrate graphically with the multiplier model a shift in the $\mathrm{AE}$ curve that would have caused the improvement. LO4, LO5

Rashmi Sinha

Numerade Educator

Problem 17

Congratulations yet again. You've just been appointed chairman to the Council of Economic Advisers in Textland. You must rely on your research assistant for the specific numbers. He says income is $$\$ 50,000$$, mpe is .75 , and the president wants to lower unemployment from 8 to 6 percent. (Remember Okun's rule of thumb.) a. Advise him.
b. Your research assistant comes in and says "Sorry, I meant that the mpe is .67." You redo your calculations.
c. You're just about to sec the president when your research assistant comes running, saying, "Sorry, sorry, I meant that the mpe is .5." Redo your calculations. LO4, LO5

Check back soon!

02:17

Problem 18

State what fiscal policy you would recommend to eliminate the inflationary or recessionary gap in the following scenarios:
a. Recessionary gap of $$\$ 800 ; m p e=.5$$.
b. Inflationary gap of $$\$ 1,500$$; mpe $=.8$.
c. Real GDP =$$\$ 10,200$$; potential GDP =$$\$ 9,000$$; $m p e=.2$.
d. Real GDP =$$\$ 40,500$$; potential GDP =$$\$ 42,000$$; $m p e=.7 . \quad$ LO5

Jennifer Stoner

Numerade Educator

02:33

Problem 19

Congratulations one more time. You have been appointed chair of Economic Advisers in Fantasyland. Income is currently $$\$ 600,000$$, unemployment is 5 percent, and there are signs of coming inflation. You rely on your research assistant for specific numbers. He tells you that potential income is $$\$ 564,000$$ and the mpe is .5 .
a. The government wants to eliminate the inflationary gap by changing expenditures. What policy do you suggest?
b. By how much will unemployment change after your policy has taken effect?
c. Your research assistant comes in and says, "Sorry, I meant that the mpe is .8." Redo your calculations for parts $a$ and $b$. LO5