Question

In: Economics

What would happen if the government increased its spending in response to an increase in consumer...

What would happen if the government increased its spending in response to an increase in consumer savings?

	The increase in government spending would cause output to rise by even more than it would as a result of the increase in savings.
	The increase in government spending would offset (fully or partially) the decline in consumer spending.
	The increase in government spending would cause investment spending to fall, causing output to decline.
	None of the above.

(8)

An increase in taxes reduces aggregate expenditures by an amount equal to

	the change in taxes multiplied by −b.
	the change in taxes multiplied by (−b/1 − b).
	the change in taxes multiplied by (1/1 − b).
	the change in taxes.

(9)

According to Say’s Law, supply creates demand.

	true
	false

(10)

Which of the following statements regarding aggregate expenditures is correct?

	Consumer spending, or consumption, decreases as consumer income increases.
	When the interest rate is low, investment spending increases.
	If the exchange rate rises, foreigners will increase their purchases of U.S. goods and services.
	Government spending depends on aggregate income.

(11)

If the marginal propensity to consume = .85 and taxes = 0, we know that consumers typically save $.15 of each additional dollar of income they receive.

	true
	false

Expert Solution

Q7). The correct option is (a).

The increase in government spending would cause output to rise by even more than it would as a result of the increase in savings.

Increased government spending is likely to cause a rise in aggregate demand (AD). This can lead to higher growth in the short-term. Higher government spending will also have an impact on the supply-side of the economy – depending on which area of government spending is increased.

Q8). The correct option is (b).

the change in taxes multiplied by (−b/1 − b).

True.Q9). The correct option is

Says law is one of the classical model,which holds that "supply creates its own demand". Whatever the supply came in the market finds its demand in market as well.

Q10). The correct option is (b).

When the interest rate is low, investment spending increases.

As we know, when the rate of interest is low the investment spending will increase and this in turn will increase the aggregate expenditure spending in the economyy.

Q11). The correct option is

True.

As per the given details, MPS = 1- PC = 1-.85 = .16 It means that of each $ income, $.15 is saved.

Hope you got the answer.

Thanks!

Rahul Sunny answered 8 months ago

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