Question

If the expenditure multiplier is 2.5 and the government spending increases by $4 billion, what would be the increase in the real GDP?

Select one: a. $8 billion b. $6.5 billion c. $1.6 billion d. $10 billion

Say’s Law states that supply creates its own demand. In the neoclassical zone on the graph above, supply is at its potential GDP, at full capacity. When aggregate supplies have reached their full potential output, what happens if demand shifts to the right?

Select one:

a. The aggregate demand prices decrease as AD shifts to the right.

b. The aggregate demand prices increase as AD shifts to the right.

c. The aggregate supply outputs increase and LRAS shifts to the right.

d. The GDP deflator shifts up and to the left.

Aggregate demand is more likely than aggregate supply to ________ in the short run.

Select one:

a. shift substantially

b. remain at zero

c. remain unchanged

d. increase slightly

During recessionary times it can be hard to coordinate lower wages for workers because of the ________.

Select one:

a. relative wage theory

b. shoe leather costs

c. discoordination argument

d. coordination argument

Expansionary fiscal policy might include which of the following?

Select one:

a. Increase in taxes or increased government spending.

b. Reduction of taxes or increased government spending.

c. Reduction in taxes or lowered government spending.

d. Increase in taxes or decreased government spending.

Answer 1

If the expenditure multiplier is 2.5 and the government spending increases by $4 billion, what would be the increase in the real GDP?

d. $10 billion

total increase=multiplier x rise in govt expenditure=2.5x4=10billion

Say’s Law states that supply creates its own demand. In the neoclassical zone on the graph above, supply is at its potential GDP, at full capacity. When aggregate supplies have reached their full potential output, what happens if demand shifts to the right?

Select one:

b. The aggregate demand prices increase as AD shifts to the right.

as supply is at its highest possible level if demand increases only price is going to increase.

Aggregate demand is more likely than aggregate supply to ________ in the short run.

Select one:

c. remain unchanged

because the factors affecting consumption and investment are less likely to change in the short run.

During recessionary times it can be hard to coordinate lower wages for workers because of the ________.

d. coordination argument

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The coordination argument is such that if we want to cut wages we must have the full information about the labour market and hence we must be sure that the lower wages will be acceptable by the workers.

Expansionary fiscal policy might include which of the following?

Select one:

b. Reduction of taxes or increased government spending.

To expand the economy these are the only these options because cutting tax would result in more consumption and along with increased govt spending the economy is going to expand.

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