ECON 201 Section 9
Handout 27-1 (10 Points)
Spending Round by Round
Complete the following exercises.
1. Assume the MPC is 0.75. What is the value of the multiplier?
2. Assume investment spending increases by $20 billion and the MPC is 0.75. Calculate the first through the fourth rounds of spending in the economy.
3. Assume investment spending increases by $20 billion and the MPC is 0.75. Calculate the total change in GDP arising from this increase in investment spending.
Handout 28-1 (10 Points)
Working with the Aggregate Consumption Function
Complete the following exercises.
1. Assume there are four individuals in the macroeconomy. Using the data in the following table, compute the aggregate consumption function.
|
Current Disposable Income |
Consumer Spending, Cara |
Consumer Spending, Fred |
Consumer Spending, Don |
Consumer Spending, Robin |
|
$ 0 |
$1,050 |
$1,350 |
$1,580 |
$2,100 |
|
1,000 |
1,200 |
1,500 |
1,800 |
2,400 |
2. Explain what the values of the slope and vertical intercept of the aggregate consumption function mean from an economic perspective.
Handout 28-2 (10 Points)
Controlling Inventories
Work in pairs to answer the following thought questions.
1. Why is it important for businesses to minimize any unplanned changes in their inventories?
2. Is it easier or harder for firms to minimize any planned changes in their inventories today than it was 50 years ago?
Handout 29-1 (10 Points)
Macroeconomic Table for Two
Work in pairs using the data in the following table to complete the following exercises.
|
GDP |
YD |
C |
I Planned |
AEPlanned |
I Unplanned |
(billions of dollars)
|
$ 0 |
$ 0 |
$ 200 |
$ 100 |
$ |
$ |
|
400 |
400 |
500 |
100 |
______ |
______ |
|
800 |
800 |
800 |
100 |
______ |
______ |
|
1,200 |
1,200 |
1,100 |
100 |
______ |
______ |
|
1,600 |
1,600 |
1,400 |
100 |
______ |
______ |
1. Complete the columns for AEPlanned and IUnplanned in the table.
2. What is the value of the MPC?
3. What is the equation for the planned aggregate expenditure function?
4. What is the value of income–expenditure equilibrium GDP, (Y*)?