CHAPTER 26W: APPENDIX A: AN ALEBRAIC
PRESENTATION OF THE EXPANDED
MULTIPLIER MODEL
1. To determine precisely how much we would need to decrease taxes we must
2. We would recommend increasing expenditures by $80 (80 × 5 = 400).
3. This makes the multiplier 3.57, which means that we would increase spending by
4. This makes the multiplier 2.08, which means that we would increase spending by
5. Making taxes and imports endogenous reduces the size of the multiplier because
6. This would make the multiplier = 1/(1 – c + ct + m – mt). It would be a slightly
CHAPTER 26W: APPENDIX B: THE MULTIPLIER
MODEL AND THE AS/AD MODEL
1. a. As shown in the left-hand graph below, an increase in autonomous expenditures
b. As shown in the right-hand graph below, an increase in autonomous expenditures
1
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2. a. The AD curve will be steeper.
c. Since prices are somewhat flexible, the rise in expenditures is split between an
upward shift of the AE curve and a rise in prices that causes a downward shift of
2
© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
2. a. The AD curve will become steeper.
b. An increase in the size of the
multiplier makes the AD curve
c. An increase of $20 in autonomous
d. A decline in the price level
disrupting the financial market will
3
© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.