Consider the Following Multiplier Model Diagram

question 13

Essay

Consider the following multiplier model diagram:
For each of the following,draw a picture to show what would happen to the equilibrium level of income in the economy.
(a)Consumer sentiment about the future improves resulting in an increase in autonomous consumption of 100.
(b)Foreign economic activity rises,which results in an increase in autonomous exports of 100.
(c)Because the average life span increases,many people are saving more of their income than ever before.Consequently the mpe falls from 0.75 to 0.66.

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Definitions:

Inferior Good

A type of good whose demand decreases as consumers' income rises, contrary to what happens with normal goods.

Substitute Goods

Products or services that can be used in place of one another, where an increase in the price of one leads to an increase in demand for the other.

Complementary Goods

Goods that are often used together, where the use or value of one increases when used in conjunction with the other.

Cattle Feed

Food specifically prepared and given to cows, including grains, grasses, and other dietary supplements to maintain and improve health.