## [answered] 1. What is the GDP multiplier if the MPC is 0, 1, and 1?

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1. What is the GDP multiplier if the MPC is 0, 1, and ?1? 2. Suppose an economy consists of three individuals: Robinson, Friday, and Bart. The

following table lists how their spending varies for a \$10,000 increase in disposable income.

Disposable Consumer Spending

Income Robinson Friday Bart

\$0 \$5,000 \$7,500 6,250

10,000 10,000 8,000 14,000

a. Derive each individual?s consumption function.

b. Derive the aggregate consumption. 3. The accelerator principle states a higher growth rate of real GDP results in higher planned

spending. Will this lead to more volatile investment relative to consumer spending?

Explain. 4. Explain why a high level of aggregate unplanned inventory might make it difficult for an

economy to recover. 5. Economists generally believe recessions occur with a slump in investment spending. This

is followed by a corresponding slump in consumption spending. Explain why. 6. From Figure 10.9, suppose GDPreal* is \$1 trillion, an autonomous increase in aggregate

spending is \$100 billion, and MPC = 0.5. Calculate the equilibrium real GDP. Explain

how the new equilibrium was established.

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