The following graph represents an economy. Initially, they produced an aggregate output of $6,000 until they decreased consumption by $500. If price levels did not change, output would have fallen to $5,100. However, prices decreased because of the decrease in consumption, so output only fell to $5,400. Aggregat e Price SRAS 100 97 ADo AD Aggregat 5,10 5.40 6,00 e Outout a. Calculate the simple Keynesian multiplier if the price levels had not changed. Round the answer to the nearest two decimal points. b. Calculate the actual spending multiplier after the prices decreased. Round the answer to the nearest two decimal points.

The following graph represents an economy. Initially, they produced an aggregate output of $6,000 until they decreased consumption by $500. If price levels did not change, output would have fallen to $5,100. However, prices decreased because of the decrease in consumption, so output only fell to $5,400. Aggregat e Price SRAS 100 97 ADo AD Aggregat 5,10 5.40 6,00 e Outout a. Calculate the simple Keynesian multiplier if the price levels had not changed. Round the answer to the nearest two decimal points. b. Calculate the actual spending multiplier after the prices decreased. Round the answer to the nearest two decimal points.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section: Chapter Questions

Problem 2TY

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