In an economy, autonomous spending is 20 trillion, and the slope of the AE curve is 0.8. Equilibrium expenditure is . With a fixed price level, the multiplier is .

1) 20 trillion; 4
2) 25 trillion; 5
3) 100 trillion; 5
4) 100 trillion; 1.25
5) 25 trillion; 1.25

Question

31-10-2024
Business

High School

Thank you for visiting In an economy autonomous spending is 20 trillion and the slope of the AE curve is 0 8 Equilibrium expenditure is With a fixed price. This page is designed to guide you through key points and clear explanations related to the topic at hand. We aim to make your learning experience smooth, insightful, and informative. Dive in and discover the answers you're looking for!

In an economy, autonomous spending is 20 trillion, and the slope of the AE curve is 0.8. Equilibrium expenditure is . With a fixed price level, the multiplier is .

1) 20 trillion; 4
2) 25 trillion; 5
3) 100 trillion; 5
4) 100 trillion; 1.25
5) 25 trillion; 1.25

Answer :

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Sam05678 Sam05678 · Answer 1 · 2024-04-15T14:29:13-04:00

Final answer:

The equilibrium expenditure in an economy with 20 trillion in autonomous spending and an AE curve slope of 0.8 is 100 trillion. The multiplier at a fixed price level is 5.

Explanation:

In an economy where autonomous spending is 20 trillion and the slope of the AE curve (which represents the marginal propensity to consume) is 0.8, we can determine the equilibrium expenditure and the multiplier. The multiplier formula is given as 1/(1 - MPC), where MPC stands for marginal propensity to consume. Since the MPC is 0.8, we calculate the multiplier as 1/(1 - 0.8) = 1/(0.2) = 5.

Next, we apply the multiplier to the autonomous spending to find the equilibrium expenditure, which would be the autonomous spending multiplied by the multiplier. That equals 20 trillion * 5 = 100 trillion. Therefore, the equilibrium expenditure is 100 trillion, and the multiplier, with a fixed price level, is 5.

This matches option 3) 100 trillion; 5 from your given choices, which is the correct answer. It is essential to understand that because the multiplier is a number greater than one, any change in autonomous spending will result in a larger proportional change in the equilibrium GDP.

In an economy, autonomous spending is 20 trillion, and the slope of the AE curve is 0.8. Equilibrium expenditure is ________. With a fixed price level, the multiplier is ________.1) 20 trillion; 4 2) 25 trillion; 5 3) 100 trillion; 5 4) 100 trillion; 1.25 5) 25 trillion; 1.25

Answer :

Final answer:

Explanation:

Other Questions

In an economy, autonomous spending is 20 trillion, and the slope of the AE curve is 0.8. Equilibrium expenditure is . With a fixed price level, the multiplier is .

1) 20 trillion; 4
2) 25 trillion; 5
3) 100 trillion; 5
4) 100 trillion; 1.25
5) 25 trillion; 1.25