How do we calculate the effects of real GDP on consumption expenditure and imports by using the marginal propensity to consume and the marginal propensity to import?
What will be an ideal response?
The effects of real GDP on consumption expenditure and imports are determined respectively by the marginal propensity to consume and the marginal propensity to import. In particular, the effect of a change in real GDP on consumption expenditure equals the marginal propensity to consume multiplied by the change in disposable income. Similarly, the effect of a change in real GDP on imports equals the marginal propensity to import multiplied by the change in real GDP.
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Which of the following would cause prices and real GDP to rise in the short run?
a. short-run aggregate supply shifts right b. short-run aggregate supply shifts left c. aggregate demand shifts right d. aggregate demand shifts left
Suppose that Julia receives a $20 gift card for the local coffee shop, where she only buys lattes and muffins. If the price of a latte is $4 and the price of a muffin is $2, then we can conclude that Julia:
A. should only buy muffins. B. should only buy lattes. C. can buy 5 lattes or 10 muffins if she chooses to buy only one of the two goods. D. can buy 5 lattes and 10 muffins with her $20 gift card.