If the marginal propensity to consume is .80 and both taxes and government purchases increase by $50 billion, real GDP will
A. decrease by $10 billion.
B. increase by $50 billion.
C. increase by $10 billion.
D. decrease by $50 billion.
Answer: B
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If short-run equilibrium output equals 50,000 and potential output (Y*) equals 45,000, then this economy has a(n) ________ gap that can be closed by ________.
A. expansionary; decreasing government purchases B. expansionary; increasing transfer payments C. expansionary; decreasing taxes D. recessionary; increasing government purchases
If a monopolist's marginal revenue is $35 per unit and its marginal cost is $25, then
A) to maximize profit the firm should decrease output. B) to maximize profit the firm should continue to produce the output it is producing. C) to maximize profit the firm should increase output. D) Not enough information is given to say what the firm should do to maximize profit.
A market transaction causes an externality if someone
A. directly involved in the transaction receives uncompensated benefits or costs from it. B. not directly involved in the transaction receives uncompensated benefits or costs from it. C. directly involved in the transaction seeks legal assistance to ensure that the transaction is carried out. D. not directly involved in the transaction interferes in it by imposing regulations or product standards.
The biggest difference between using a Pigovian tax or a tradable allowance to correct for a negative externality is:
A. the tax creates an efficient outcome, and the tradable allowances do not. B. the government collect revenues from the tax, and the private parties trade quota rights on their own. C. the tax maximizes total surplus, but the tradable allowances do not. D. All of these are differences between the two government policies.