This question is intended to illustrate the similarity between the simple income-expenditure multiplier from Chapters 21 and

Question:

This question is intended to illustrate the similarity between the simple income-expenditure multiplier from Chapters 21 and 22 and the deposit multiplier that we examined in this chapter.

a. Recalling the macro model of Chapters 21 and 22 , suppose the marginal propensity to spend out of GDP, \(z\), is 0 .6 . If autonomous spending increases by \(\$ 100 0\), fill in the table below. (You might want to re-read Applying Economic Concepts 21 -1.)

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b. The sum of the values in the third column should be

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What is the total change in GDP (after an infinite number of rounds)?

c. Now consider the process of deposit creation from this chapter. Consider a new deposit of \(\$ 100 0\) and a target reserve ratio, \(v\), of 0 .25 (with no cash drain). Fill in the following table:

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d. The sum of the values in the first column should be

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What is the total change in deposits (after an infinite number of rounds)?

e. Explain why taxes and imports for the simple multiplier in Chapter 21 are similar to a reserve ratio for the deposit multiplier in this chapter.

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Macroeconomics

ISBN: 9780133910445

15th Edition

Authors: Christopher T S Ragan

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