Author Question: Based on the table above, a. What is the equilibrium price level and real GDP? b. If potential ... (Read 102 times)

nramada · **on:** Jun 29, 2018

Based on the table above,

a. What is the equilibrium price level and real GDP?
b. If potential GDP is 11.0 trillion, what does that imply about the economy's level of employment?
c. If potential GDP is 9.0 trillion, what does that imply about the economy's level of employment?

Question 2

What is the marginal propensity to consume? Can the marginal propensity to consume be greater than 1?

What will be an ideal response?

joanwhite · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

a. The equilibrium price level is 105; the equilibrium real GDP is 10.0 trillion.
b. If potential GDP is 11.0 trillion, then the economy is at an equilibrium that is a below full-employment equilibrium with a recessionary ga

Answer to Question 2

The marginal propensity to consume is the change in consumption expenditure divided by the change in disposable income that brought it about. The marginal propensity to consume cannot be greater than 1. Indeed, it is less than 1 because people save part of an increase in disposable income.