ECN 204 Chapter Notes - Chapter 11, 17: Absolute Advantage, Trade Barrier, Fiscal Multiplier
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Assume that the equations below describe the expenditures within a particular macroeconomy and that these equations conform to the assumptions we've made in the lecture regarding the fixed price level Aggregate Expenditure model. All values for expenditure and income are dollar amounts, but for simplicity, we've dropped the $ below.
C = 0.8(DI) + 1000 | C = Consumption expenditure, DI = Disposable Income |
I = 2000 | I = Investment expenditure |
G = 1000 | G = government expenditure |
X = 1600 | X = spending on exports |
M = 1800 | M = spending on imports |
DI = Y - T | Y = real GDP, T = tax revenues/> |
T = 1000 | Ā |
Yp = 12000 | Yp = Potential GDP |
Given the equations above, we can describe the GDP, government budget, and net exports in this economy. Select three characteristics from the list below which accurately describe this economy. Note that there is no partial credit on this question. I.e., your answer will either be all correct, or all wrong.
Ā | a. |
inflationary gap |
Ā | b. |
recessionary gap |
Ā | c. |
no output gap |
Ā | d. |
government budget surplus |
Ā | e. |
government budget deficit |
Ā | f. |
balanced government budget |
Ā | g. |
trade deficit |
Ā | h. |
trade surplus |
Ā | i. |
net exports of zero |
1. The multiplier helps explain
Ā | Ā |
A. why a decrease in taxes causes real Gross Domestic Product (GDP) to fall by more than the amount of the decrease in taxes. |
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Ā | Ā |
B. why a fall in investment cause real Gross Domestic Product (GDP) to rise by more than the amount of the decrease in investment. |
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Ā | Ā |
C. why a rise in government expenditures causes real Gross Domestic Product (GDP) to rise by more than the amount of the increase in government spending. |
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Ā | Ā |
D. why an increase in disposable income causes real Gross Domestic Product (GDP) to rise by less than the amount of the increase in disposable income. Ā 2. If the marginal propensity to save (MPS) increases, the multiplier
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