When there is a shift in autonomous expenditure, why is there a multiple expansion of income and real GDP? Trace the multiplier effect through the first four rounds when there is an increase in autonomous expenditure of $40 billion and the marginal propensity to consume is 0.75
There is a multiple expansion of income and real GDP because one person's spending becomes another person's income who, in turn, spends and creates more income. The initial increase in autonomous spending will create $40 billion in additional income. Resource owners will spend 75 percent (MPC = 0.75) of their gain in income or $30 billion. This creates $30 billion in income from which consumers will spend $22.5 billion. In turn, this $22.5 billion in new income creates $16.88 billion in new spending. In the next round $16.88 billion in new income will create $12.66 billion in new spending.
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Using Taylor's rule, when the equilibrium real federal funds rate is 3 percent, the positive output gap is 2 percent, the target inflation rate is 1 percent, and the actual inflation rate is 2 percent, the nominal federal funds rate target should be
A) 5 percent. B) 5.5 percent. C) 6 percent. D) 6.5 percent.
The situation in which a person places greater value on a good as more and more people possess it is called
A) Bandwagon Effect. B) Greater Value Effect. C) Snob Effect. D) Behavioral Effect.
Suppose we were analyzing the Turkish lira per euro foreign exchange market. If The Euro-Area's tax level falls relative to Turkey and nothing else changes, then the:
a. The supply of euros in the foreign exchange market rises, and the demand for euros in the foreign exchange market falls, causing a depreciation of the euro. b. The supply of euros in the foreign exchange market falls, and the demand for euros in the foreign exchange market falls, causing an uncertain change in the value of the euro. c. The supply of euros in the foreign exchange market falls, and the demand for euros in the foreign exchange market rises, causing an appreciation of the euro. d. Neither supply nor demand in the foreign exchange market change because relative international prices influence trade flows and not the exchange rate. e. The supply of euros in the foreign exchange market rises, and the demand for euros in the foreign exchange market rises, causing an uncertain change in the value of the euro.
Which of the following would likely be considered as a topic of microeconomics?
A) a nation's unemployment rate B) Gross Domestic Product C) the price of apples D) the effects of fiscal policy on the economy