Question

In: Economics

1. GDP (Y) = C + I + G Consumption = 10 + .75Y Investment =...

1. GDP (Y) = C + I + G

Consumption = 10 + .75Y

Investment = 20 + .15Y

Government = 35

The size of the expenditure multiplier for this hypothetical economy is

a. 4.

b. 10.

c. 2.

d. none of the other answers are correct.

2. Find the level of equilibrium income, given the following values for the economy:

Consumption = 10 + .75Y

Investment = 20 + .15Y

Autonomous Taxes = 20

Government = 30

a. 180

b. 300

c. None of the other answers are correct.

d. 450

3. An economy with a marginal propensity to consume = .8 also has a marginal propensity to invest (an induced variable) = .1

When policy makers increase government spending by $ 100, we should expect (ceteris paribus) that income will increase by

a. none of the other answers are correct.

b. $ 100.

c. $ 200.

d. $ 500.

4. The most deflationary policy, ceteris paribus, among the following is

a. an appreciating domestic currency.

b. a reduction in reserve requirements.

c. a broad based tax cut.

d. a balanced-budget increase in both government spending and autonomous taxes.

e. a reduction in money demand.

f. an open market purchase by the central bank.

Expert Solution

Rahul Sunny answered 2 years ago

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