Question

Question 1:
As of December 2019, Guyana's aggregate expenditure exceeded its national income. As a result, unplanned investment is _____ and Guyanese firms are responding by _____ production.
a) negative; decreasing
b) positive; decreasing
c) positive; increasing
d) negative; increasing

Question 2:
Use the following information about the economy of Guyana to answer the below question (NOTE - values are in Guyanese dollars):

2011 GDP - $460 billion
2012 GDP - $513 billion

2011 Consumption - $$477 billion
2012 Consumption - $529 billion

What is the size of the simple spending multiplier? (Assume no taxes or transfers.)

(Round your answer to 2 decimal places.)
Question 3:
Like most countries, Guyana is suffering recessionary pressure currently as a result of the crisis. In an attempt to avoid further increasing the deficit, it has reduced government spending. This policy is a movement toward a balanced budget (though Guyana will still run a deficit). This policy will _____ the debt and _____ recessionary pressures.
a) increase; reduce
b) increase; intensify
c) decrease; reduce
d) decrease; intensify

Answer 1

1. C) because once the expenditure rises the liquidity rise which gives lending power to the banks and the investment oower also increases which ultimately increases the production of economy.

2. Spending multiplier = 1/MPS = 1/(1-MPC)

MPC = Increase in consumption/Increase in income

=(529-477)/(513-460)

=52/53

MPC = 0.98

MPS = 1-MPC = 1-0.98 = 0.02

Spending multiplier = 1/0.02 = 100

3. b) because the government spending mainly puts pressure on the taxation from the public which will be reduced and ultimately the government will have no funds leading to no repayment of country debts and recession will still be prevailing