Answer the following questions true (T) or false (F)
1. Suppose real GDP is $13 trillion and potential real GDP is $13.5 trillion. If Congress and the president increase government purchases by $500 billion, then the economy will be brought to equilibrium at potential real GDP.
2. In the case of an upward-sloping aggregate supply curve, the change in real GDP brought about by a change in government spending will be less than that predicted by the simple government purchases multiplier.
3. Crowding out refers to a decrease in government purchases as a result of an increase in private expenditures.
1. FALSE
2. TRUE
3. FALSE
You might also like to view...
The property tax is very popular because
A. it is fairly assigned. B. it is administered locally. C. it is very regressive. D. all of these answer options are correct. E. none of these answer options are correct.
Refer to Figure 3-1. If the product represented is a normal good, an increase in income would be represented by a movement from
A) A to B. B) B to A. C) D1 to D2. D) D2 to D1.
Which of the following correctly explains the crowding-out effect?
a) An increase in government expenditures decreases the interest rate and so increases investment spending. b) An increase in government expenditures increases the interest rate and so reduces investment spending. c) A decrease in government expenditures increases the interest rate and so increases investment spending. d) A decrease in government expenditures decrease the interest rate and so reduces investment spending.
Say's law
A. was a basic pillar of classical economics. B. was a basic pillar of Keynesian economics. C. was formulated during the Great Depression. D. proves that we can never have full employment.