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by: Mandy Schmitt


Mandy Schmitt
OK State
GPA 3.53

Abdul Munasib

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Abdul Munasib
Class Notes
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This 0 page Class Notes was uploaded by Mandy Schmitt on Sunday November 1, 2015. The Class Notes belongs to ECON 3313 at Oklahoma State University taught by Abdul Munasib in Fall. Since its upload, it has received 19 views. For similar materials see /class/232928/econ-3313-oklahoma-state-university in Economcs at Oklahoma State University.


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Date Created: 11/01/15
Abdul Munasz39b Econ 3313 Answers to endofthechapter questions Chapter 20 page 536 The IS LM Model 1 Consumption function Table Y a 0 100 E a Equilibrium output of 1200 occurs at the intersection of the 450 line and the aggregate demand function Y a C I 300 075 Y b The equilibrium level of output falls by 400 to 800 1 1 1 mpc 1 08 V39 The multiplier in Problem 4 5 1 1 mpc 1 075 The intuitive explanation for the higher multiplier in Problem 4 is that the higher marginal propensity to consume in that case results in a greater rise in consumer expenditure when there is an increase in planned investment spending that raises income The greater rise in consumer expenditure then leads to a higher quantity of output demanded aggregate demand and hence to a higher level of equilibrium output True In both situations autonomous spending rises by 50 billion leading to the same increase in aggregate output 9 AY The multiplier in Problem 3 gt1 3 AG AY1 mpc Since mpc 05 we have 1 mpc AG 1000 1 05 500 So government spending has to rise by 500 billion 11 As a result of the reduction in taxes consumer expenditure increases by mchAT 05 gtlt300 150 billion Since govemment spending falls by 300 billion the net change in autonomous spending is 7150 billion So aggregate output 1 1 mpc If as result of a fall in interest rates planned investment spending doesn t change equilibrium output remains unchanged this means that the IS curve is vertical False Even if the economy is at a point off both the IS and LM curves it will have a tendency to move toward both of them Only when it is at the intersection of both curves is there no tendency for the interest rate and output to change so this is where the economy comes to rest falls by 150 X 150 X 2 300 billion E UI


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