Consider two closed economies that are identical except for their marginal propensity to consume (MPC). Each economy is in equilibrium with real GDP and aggregate expenditure equal to $100 billion. The first economy's MPC is 0.5. Therefore, its initial aggregate expenditure line has a slope of 0.5 and passes through the point (100, 100). The second economy's MPC is 0.75. Therefore, its initial aggregate expenditure lines have a slope of 0.75 and pass through the point (100, 100). Now suppose there is an increase of $20 billion in investment in each economy. In the first economy (with MPC = 0.5), the $20 billion increase in investment causes aggregate output demanded to increase by_________. In the second economy (with MPC = 0.75), the $20 billion increase in investment causes aggregate output demanded to increase by _____________. Therefore, a higher MPC is associated with a ________multiplier.
Consider two closed economies that are identical except for their marginal propensity to consume (MPC). Each economy is in equilibrium with real GDP and aggregate expenditure equal to $100 billion. The first economy's MPC is 0.5. Therefore, its initial aggregate expenditure line has a slope of 0.5 and passes through the point (100, 100). The second economy's MPC is 0.75. Therefore, its initial aggregate expenditure lines have a slope of 0.75 and pass through the point (100, 100). Now suppose there is an increase of $20 billion in investment in each economy. In the first economy (with MPC = 0.5), the $20 billion increase in investment causes aggregate output demanded to increase by_________. In the second economy (with MPC = 0.75), the $20 billion increase in investment causes aggregate output demanded to increase by _____________. Therefore, a higher MPC is associated with a ________multiplier.
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| 10. | The long-run aggregate supply curve (LRAS) is Y = Yf, which depends on the amounts of resources and the level of technology innovation. If a country has more resources and better technology, which of the following is true? | ||||||||||||||||
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| 11. | Suppose the wage rates of workers are based on the expected price level. If there is an unexpected increase in AD, it will cause the actual price level to increase. Then workers should raise their expected price level and negotiate a higher wage rate. Then which of the following is most likely to be true when the expected price increases? | ||||||||||||||||
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| 12. | Suppose the economy is in the long-run equilibrium, i.e., Y = Yf, and there is an unexpected decrease in AD. Assume that Yf is fixed, then which of the following is most likely to be true? | ||||||||||||||||
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| 13. | The short-run (SR) equilibrium is the intersection between AD and SRAS, and long-run (LR) equilibrium is the intersection between AD and LRAS. Every LR equilibrium is a SR equilibrium, but a SR equilibrium is not always the LR equilibrium. If an economy is operating at a SR equilibrium where Y > Yf, which of the following will occur in the process toward the new LR equilibrium when the economy corrects itself? | ||||||||||||||||
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| 14. | From the Keynesians, Y = C + I + G + NX can be transformed into a theoretical model. In particular, assume that the consumption C = A + mpc (Y-T), where A is a constant, mpc is the marginal propensity to consume, Y is national income and T is income taxes. Suppose in the goods market equilibrium, aggregate expenditure = national income such that the two Y's will be the same from Y = A + mpc (Y-T) + I + G+ NX. . Suppose C = 400 + 0.75(Y รขยย T). G = 100, I = 100, T = 100, and NX = 150, what is the Y in the goods market equilibrium? (All of the variables are in terms of million dollars) | ||
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| 15. | Continue to assume that C = 400 + 0.75 (Y - 100), I = 100, and NX = 150. But the government now increases spending from 100 to 200, how much is the new Y in the goods market equilibrium? | ||||||||||||||||
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| 16. | Continue to assume that C = 400 + 0.75 (Y - 100). Then which of the following is true? | ||||||||||||||||
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| 17. | Suppose the federal government needs to balance the budget, which means that when the government spending increases, taxes must increase equally. In this case, government spending multiplier is called the balanced-budget multiplier, defined as the increase in real GDP/increase in government spending. By following the example from the previous question, how mcuh is the balanced-budget multiplier? | ||||||||||||||||
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