Interpret these numbers as follows: The income level given in the output column gives rise to the sector demands shown in the other columns.
N7. From the data in table 4.1, when the level of income is 350, what will be happening to inventories?
N8. What is the equilibrium level of income for the economy described in table 4.1?
*N9. Using the data in table 4.1, by how much should the level of income have increased after two rounds of the multiplier process if the economy begins at its equilibrium position and increases government spending by $50 billion?
*N10. Suppose that last year consumption was $570 billion, tax receipts were $240 billion, and income was $900 billion. The corresponding numbers for this year are $600 billion, $250 billion, and $950 billion.
a. What is the MPC (marginal propensity to consume out of disposable income)?
b. What is the marginal tax rate?
Appendix 4.1 Macroeconomics Before Keynes: the Classical School
The classical school dominated macroeconomic thinking before Keynes published his famous book The General Theory of Employment, Interest, and Money in 1936. The purpose of this appendix is to lend some perspective to this chapter's exposition of the Keynesian approach by providing a brief description of the classical view, which has three distinguishing characteristics, and by contrasting them with Keynes's view.
Wage and Price Flexibility
Classical economists believed that prices and wages were quite flexible, so that disequilibria were uncommon. They explained unemployment, a disequilibrium in the the labor market, as a tem-
