“If taxes and government spending are increased by the same amount, there will still be a positive effect on equilibrium GDP.” Explain.
What will be an ideal response?
The initial impact of government spending is to increase aggregate demand directly by the amount of the increase in spending. Beyond that, spending is increased in successive rounds of increased incomes that result by a fraction equal to the marginal propensity to consume. This MPC-induced spending which results from the increased government purchases will be exactly offset by the tax increase whose initial impact is to reduce disposable income rather than aggregate demand directly. Thus, government spending has an initial direct effect equal to the amount of the increase in G which will not be offset.
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Describe the structure of the Fed's Open Market Committee (FOMC). What is this committee's primary responsibility?
What will be an ideal response?
Which antitrust law prohibited firms from buying stock in competitors and from having directors serve on the boards of competing firms?
A) the Sherman Act B) the Robinson-Patman Act C) the Clayton Act D) the Securities and Exchange Act
If a 5% increase in price leads to an 8% decrease in quantity demanded, demand is
a. perfectly elastic b. elastic c. unit elastic d. inelastic e. perfectly inelastic
Which of the following could not be expected to shift the aggregate demand curve?
A. net exports fall B. consumption spending decreases C. an increase in government spending D. a change in real GDP