MACRO - MOD 8 - HW

Suppose that disposable income, consumption, and saving in some country are $200 billion, $150 billion, and $50 billion, respectively. Next, assume that disposable income increases by $20 billion, consumption rises by $18 billion, and saving goes up by $2 billion. Instructions: In part a, round your answers to 2 decimal places. In part b, round your answers to 3 decimal places. a. What is the economy's MPC? MPC = What is its MPS? MPS = b. What was the APC before the increase in disposable income? APC before = What was the APC after the increase? APC after = https://www.chegg.com/homework-help/suppose-disposable-income-consumption-saving-country-200-bil-chapter-30-problem-2p-solution-9781259723223-exc

a(1). MPC = .9 a(2). MPS = .1 b(1). APC before = .75 b(2). APC after = .764

Use the table below to solve this problem. Level of Output & Income: 240 260 280 300 320 340 360 380 Consumption: $248 260 272 284 296 308 320 332 344 Saving: $-8.0, 0, 16, 24, 32, 40, 48, 56 Suppose the wealth effect is such that a $10 change in wealth produces a $3 change in consumption at each level of income. Instructions: Enter your answers as a whole number. a. If real estate prices tumble such that wealth declines by $80, what will be the new level of consumption at the $340 billion level of disposable income? $284 Original Consumption at $340 = $308 Change in consumption = $3 for every $10 = .3 $80 = decline in wealth, so; = .3 x 80 = 24 (consumption will fall $24 at every income level) New consumption would = 308-24 = $284, so; $284 bil. at income level of $340 bil. 340-284 = 56 = NEW level of SAVINGS If real estate prices tumble such that wealth declines by $80 and the wealth effect is such that a $10 change in wealth produce a $3 change in consumption at each level of income then consumption will fall by $48 at every level of income (0.3*$80 = 24). This implies consumption equals $284 (308 - 24) at the income level of $340. Consumption was originally $308 at this income level and the decline in wealth results in a fall in consumption of $24. To find the new level of savings after the decline in wealth we subtract the NEW level of consumption (= $284 ) from disposable income (=$340), which equals $ (= $340 - $284). The household increases savings to offset the decline in wealth. b. What will be the new level of saving? $56 EXAMPLE: Level of Output and Income 480 520 560 600 640 680 720 760 800 Consumption: $496 520 544 568 592 616 640 664 688 Saving: $-16.0, 0, 16, 32, 48, 64, 80, 96, 112 Answer: If real estate prices tumble such that wealth declines by $160and the wealth effect is such that a $10 change in wealth produce a $3 change in consumption at each level of income then consumption will fall by $48 at every level of income (0.3*$160 = 48). This implies consumption equals $568 (616-48) at the income level of $680. Consumption was originally $616 at this income level and the decline in wealth results in a fall in consumption of $48. To find the new level of savings after the decline in wealth we subtract the NEW level of consumption (=568) from disposable income (=$680), which equals $112 (= $680- $568). The household increases savings to offset the decline in wealth. rev: 10_20_2020_QC_CS-23645 https://www.chegg.com/homework-help/questions-and-answers/suppose-wealth-effect-10-change-wealth-produces-3-change-consumption-level-income-assume-r-q12450889

a. $284 billion b. $56 billion

Suppose that an initial $40 billion increase in investment spending expands GDP by $40 billion in the first round of the multiplier process. Also assume that GDP and consumption both rise by $24 billion in the second round of the process. Instructions: Round your answers to 1 decimal place. a. What is the MPC in this economy? b. What is the size of the multiplier? c. If, instead, GDP and consumption both rose by $32 billion in the second round, what would have been the size of the multiplier? https://www.chegg.com/homework-help/questions-and-answers/suppose-initial-40-billion-increase-investment-spending-expands-gdp-40-billion-first-round-q10891169

a. 0.6 b. 2.5 c. 5

Suppose a handbill publisher can buy a new duplicating machine for $1,000 and the duplicator has a 1-year life. The machine is expected to contribute $1,090 to the year's net revenue. Instructions: Enter your answer as a whole number. a. What is the expected rate of return? percent b. If the real interest rate at which funds can be borrowed to purchase the machine is 8 percent, will the publisher choose to invest in the machine? (Click to select) No Yes Will it invest in the machine if the real interest rate is 10 percent? (Click to select) No Yes If it is 11 percent? (Click to select) No Yes 1)What is expected rate of return? answer: Expected rate of return = (net revenue - cost) / cost = (1090 - 1000) / 1000 = 9/100 (decimal: 0.09) in percentage term 10% = (100*0.09) = 9% is the expected rate of return. 2) if the real interest rate at which funds can be borrowed to purchase the machine is 8% will the publisher choose to invest in the machine? Answer: YES, 9% IS GREATER THAN 8%. 3)will the publisher invest in the machine if the real interest rate is 10%? Answer: NO, 9% (rate of return) is less than 10%. 4) if it is 11%? Answer: NO, 9% is less than 11%. https://www.chegg.com/homework-help/questions-and-answers/suppose-handbill-publisher-buy-new-duplicating-machine-1000-duplicator-1-year-life-machine-q26270448

a. 9 % b. Yes c. No d. No

In year 1, Adam earns $1,000 and saves $100. In year 2, Adam gets a $500 raise so that he earns a total of $1,500. Out of that $1,500, he saves $200. What is Adam's MPC out of his $500 raise? a. 0.50 b. 0.80 c. 0.75 d. 1.00

b. 0.80

If the MPS rises, then the MPC will: a. rise b. fall c. stay the same.

b. fall

Irving owns a chain of movie theaters. He is considering whether he should build a new theater downtown. The expected rate of return is 15 percent per year. He can borrow money at a 12 percent interest rate to finance the project. Should Irving proceed with this project? a. Yes b. No

a. Yes

What are the variables (the items measured on the axes) in a graph of the (a) consumption schedule and (b) saving schedule? Are the variables inversely (negatively) related, or are they directly (positively) related? a. Consumption schedule The variable on the vertical (y) axis is (Click to select) saving disposable income consumption dissaving and the variable on the horizontal (x) axis is (Click to select) disposable income consumption dissaving saving . These variables are (Click to select) inversely directly related. b. Saving schedule The variable on the vertical (y) axis is (Click to select) dissaving saving disposable income consumption and the variable on the horizontal (x) axis is (Click to select) disposable income consumption dissaving saving . These variables are (Click to select) directly inversely related. c. What is the fundamental reason that the levels of consumption and saving in the United States are each higher today than they were a decade ago? multiple choice 7Real GDP and disposable income are higher.Real GDP and disposable income are lower.Interest rates are lower.Interest rates are higher.

a. consumption - disposable income - directly related b. saving - disposable - directly related c. real GDP and disposable income are higher

The following table provides data for output (real GDP) and saving. a. Fill in the missing numbers (gray-shaded cells) in the table. Instructions: In the table, enter your answers for consumption as a whole number. Round your answers for APC and APS to 3 decimal places. Round your answers for MPC and MPS to 1 decimal place. If you are entering any negative numbers be sure to include a negative sign (−) in front of those numbers. Instructions: Enter your answer as a whole number. b. What is the break-even level of income in the table? $ What is the term that economists use for the saving situation shown at the $480 level of income? (Click to select) Dissaving Saving c. For each of the following items, indicate whether the value in the table is either constant or variable as income changes: The MPS: (Click to select) Variable Constant The APC: (Click to select) Constant Variable The MPC: (Click to select) Variable Constant The APS: (Click to select) Constant Variable https://www.chegg.com/homework-help/questions-and-answers/following-table-provides-data-output-real-gdp-saving--fill-missing-numbers-gray-shaded-cel-q36645237

b. 520 c. dissaving d. constant variable constant variable

In what direction will each of the following occurrences shift the consumption and saving schedules, other things equal? a. A large decrease in real estate values, including private homes. The consumption schedule will shift (Click to select) downward upward . The saving schedule will shift (Click to select) downward upward . b. A sharp, sustained increase in stock prices. The consumption schedule will shift (Click to select) downward upward . The saving schedule will shift (Click to select) downward upward . c. A 5-year increase in the minimum age for collecting Social Security benefits. The consumption schedule will shift (Click to select) downward upward . The saving schedule will shift (Click to select) downward upward . d. An economywide expectation that a recession is over and that a robust expansion will occur. The consumption schedule will shift (Click to select) downward upward . The saving schedule will shift (Click to select) upward downward . e. A substantial increase in household borrowing to finance auto purchases. The consumption schedule will shift (Click to select) downward upward . The saving schedule will shift (Click to select) downward upward .

a. downward b. upward c. upward d. downward e. downward f. upward g. upward h. downward i. upward j. downward

If a $50 billion initial increase in spending leads to a $250 billion change in real GDP, how big is the multiplier? a. 4 b. 1 c. 5 d. 2.5

c. 5