Problems & Exercises for MACRO
UNIT THREE (FOR EXAM THREE)
Unit Three--Assignment Three--Web Problem 4
UNIT THREE (FOR EXAM THREE) Unit Three--Assignment Three--Web Problem 4Problems & Exercises for MACRO
Assume the economy is $100 billion below a full-employment GDP. For each of the following multipliers, how much of an initial change in investment spending would be needed to boost the economy to a full-employment GDP? Use the following equation:
Initial Change x Multiplier = Final Effect (+ or -) on GDP
|
Multiplier |
Initial Change |
|
10 |
|
|
5 |
|
|
3.33 |
|
|
2.50 |
|
|
2.00 |
|
|
1.67 |
|
|
1.43 |
|
|
1.25 |
|
|
1.11 |
|
Multiplier |
Initial Change |
|
10 |
10 |
|
5 |
20 |
|
3.33 |
30 |
|
2.50 |
40 |
|
2.00 |
50 |
|
1.67 |
60 |
|
1.43 |
70 |
|
1.25 |
80 |
|
1.11 |
90 |
When you calculate the initial change required, use 3.333333 and your calculator should show 30 as the answer. Use 1.666666 instead of 1.67 and your answer should be 60. Use 1.428571 instead of 1.43 and 1.111111 instead of 1.11. You should obtain the clean pattern shown above.
Note that when the MPC is high, such as .90, the multiplier is also high (10) and therefore a smaller initial change will provide the desired impact on GDP. When the MPC is low, such as .10, then the multiplier is also low (1.11) and therefore a larger initial change is needed in order to have the desired effect on the GDP.
|
Index of Web Site Pages |
|
