# Economics assignment 2 | Economics | City University of New York Hostos Community College

Overview

In last week’s readings, chapter 9 from the textbook, and from the AD – AS Model (part 2 of 3) video, we learnt about the multiplier effect on GDP from spending an additional dollar.  Specifically, we learnt that an autonomous increase in spending (an increase that is not related to, or is independent of, income levels) – say \$100 – would lead to an increase in GDP that is greater than the autonomous increase (greater than \$100).  This effect can be explained by the circular flow diagram.  The spending of \$100 by one person becomes an income of \$100 to a second person.  This person would then spend a portion of that \$100, which becomes income for a third person.  The third person would spend a portion of that portion and so on.

With the assumption that government spending, (G), investment spending (I), and international trade spending (NX), are determined independently of income, the oversimplified multiplier formula (1÷ (1 – mpc)) allows us to determine the factor by which GDP will increase.  However, one must remember to be cautious when using the oversimplified multiplier formula to determine the true multiplier effect.  In the real world, this formula overstates the true factor (the actual multiplier), and one reason for this is from our assumptions about G, I, and NX.  Other reasons include inflation (which we will address in chapter 10) and income taxation (which we will address in chapter 11).

Assignment

In the related video lecture for chapter 9 (AD – AS Model, (part 2 of 3)), we explored (albeit briefly), relaxing the assumption on investment and allowed for a portion of domestic investment to be dependent on income.  For this discussion, we will explore relaxing the assumption on net exports – in particular, on imports.  From our previous video lecture (see AD – AS Model, (part 1 of 3)), we know that higher GDP leads to higher incomes, and some of this higher income is spent on foreign goods.  In a similar way, our exports are dependent on the foreign country’s GDP.  If their GDP increase, it would lead to higher incomes and a greater opportunity to purchase our goods and services (our exports).  With this in mind, we can relax the autonomous assumption on net exports and conclude that while the level of exports is independent of our GDP (income), the level of our imports is dependent on income. But what implication does this have on our multiplier?  Would the multiplier effect be no different, smaller, or larger compared to assuming net exports is income independent?  Furthermore, would having positive net exports make a difference?

1.  From Chapter 9, review the multiplier analysis (sections 9-6, 9-7, & 9-8) on pages 179 to 186 from the textbook ( W. J. Baumol and A. S. Blinder (2020), Macroeconomics: Principles and Policy, 14 th edition).  This may help with providing your answer.

• Does having variable imports (imports dependent on income) have any effect on the multiplier?  If yes, how?  Does it increase or decrease the value of the multiplier?
• Does your answer depend on whether the country is enjoying positive or negative net exports?

Since the questions are related, a paragraph summarizing your answers should be sufficient.

1.  The title of your initial post should be: Your First Name Your Last Name Initial Comment. For example:

2.  Initial posts should be about 250 words

3.  Grading is based on your participation in this discussion.  Grading system: 6 points for content, 2 point for participation, and 2 point for timeliness. The grading rubric is available for review through the Grading Information tab below.

**Some resources are provided in the attached PDF

## Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
\$26
The price is based on these factors:
Number of pages
Urgency
Basic features
• Free title page and bibliography
• Unlimited revisions
• Plagiarism-free guarantee
• Money-back guarantee
On-demand options
• Writer’s samples
• Part-by-part delivery
• Overnight delivery
• Copies of used sources
Paper format
• 275 words per page
• 12 pt Arial/Times New Roman
• Double line spacing
• Any citation style (APA, MLA, Chicago/Turabian, Harvard)

# Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

### Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

### Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

### Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.