Exogenous Investment in the Simplified Multiplier Model
In the simplified multiplier model, fixed investment (I) is assumed to be exogenous. An exogenous variable is one whose value is determined by factors outside the model and is not influenced by the model's internal workings, such as the current level of aggregate output (Y). Therefore, investment is treated as a given value, simplifying the analysis of the income-expenditure relationship.
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Introduction to Macroeconomics Course
Ch.3 Aggregate demand and the multiplier model - The Economy 2.0 Macroeconomics @ CORE Econ
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National Income Identity in a Closed Economy without Government
Aggregate Demand in a Closed Economy without Government
Exogenous Investment in the Simplified Multiplier Model
Expanded Multiplier Model (Open Economy with Government, Trade, and Endogenous Investment)
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Explaining the Multiplier Mechanism
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In an economic model that includes only households and firms (with no government or international trade), an initial change in spending sets off a chain reaction. Match each term related to this process with its correct description.
In an economic model that only includes households and firms, with no international trade, a $20 billion increase in planned investment spending leads to a total increase in the economy's output of $100 billion. Based on this outcome, the marginal propensity to consume must be ___.
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In a closed economy with no government sector, an initial increase in planned investment of $200 million occurs. If the marginal propensity to consume is 0.6, what is the increase in consumption spending that results from the second round of the multiplier effect?
Aggregate Output (Y)
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Limitations of the Simplified Multiplier Formula
Extension of the Simplified Goods Market Model
Keynesian Assumption of Perfectly Elastic Supply
Exogenous Investment in the Simplified Multiplier Model
In a simplified economic model, firms' planned spending on new equipment and buildings is $200 billion, and spending on new residential construction is $50 billion. If the total current output of the economy increases from $1,000 billion to $1,200 billion, what will be the new level of total planned investment?
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In a simplified macroeconomic model without a government, a significant increase in the economy's total output will directly cause a proportional increase in planned investment spending.
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Learn After
Comparison of Exogenous Investment and Autonomous Consumption
Within the framework of a simplified macroeconomic model, fixed investment is assumed to be exogenous. If a widespread increase in household savings causes aggregate output to decrease by $100 billion, what will be the direct impact on the level of fixed investment according to the model's assumption?
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In the simplified multiplier model, a significant and sustained increase in consumer spending that leads to a higher level of aggregate output will, in turn, cause an increase in the level of fixed investment.
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In a simplified macroeconomic model, different economic variables play distinct roles. Match each variable below to the description that best characterizes its behavior within this model's framework.
In a simplified macroeconomic model where fixed investment is assumed to be determined by factors outside the immediate economic system (like business confidence or technological breakthroughs), and its value does not change when aggregate output fluctuates, investment is described as being a(n) ________ variable.
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