Answer to Question #88085 in Macroeconomics for Yolanda

Question

2. Suppose autonomous expenditure increases by 1 trillion, and as a result, equilibrium income increases by 3 trillion, what is the value of the multiplier?
3. Using a diagram, show the effect of an increase in autonomous expenditure on equilibrium income and expenditure
4. Suppose net investment is R2 000 000 and depreciation is R140 000. What is the value of gross investment?
5. If real interest rate is 4 per cent, and inflation is 7 per cent, what is the value of nominal interest rate?
6. What relationship does the demand for money has with income and interest rate?

Answer 1

2. If autonomous expenditure increases by 1 trillion, and as a result, equilibrium income increases by 3 trillion, then the value of the multiplier is 3/1 = 3.

3. An increase in autonomous expenditure will shift aggregate expenditure curve to the right, so equilibrium income and expenditure will increase.

4. If net investment is R2 000 000 and depreciation is R140 000, then the value of gross investment is: GI = 2000000 + 140000 = 2140000.

5. If real interest rate is 4 percent, and inflation is 7 percent, then the value of nominal interest rate is i = 4 + 7 = 11 percent.

The demand for money has direct relationship with income and interest rate.