Suppose an initial increase in spending cause the aggregate demand curve in Figure 10.2 increases by a total of $60 billion, from AD2 to AD0. Equilibrium GDP will
A. Increase by less than $60 billion because some of the additional spending drives up prices.
B. Increase by $60 billion.
C. Decrease because higher inflation causes unemployment.
D. Increase by more than $60 billion because of the multiplier effect.
Answer: A
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In practice, increases in government spending in an open economy can crowd out
A) net exports. B) consumption. C) investment. D) all of the above
Which of the following is not part of an oligopolist's business strategy?
A) determining the amount of advertising a new product needs B) deciding the level of total output of a new product C) meeting worker health and safety standards required of all firms D) setting the product's price after considering what rivals will do
If the price of inputs rises and personal income taxes rise:
a. Price index rises, and the change in real GDP is uncertain. b. Price index falls, and real GDP rises. c. Price index falls, and real GDP falls. d. Price index falls, and the change in real GDP is uncertain. e. The change in price index is uncertain, and real GDP falls.
If the government decides to increase spending on defense:
A. the aggregate demand curve will shift out temporarily. B. the aggregate demand curve will shift in permanently. C. the aggregate demand curve will shift in temporarily. D. the aggregate demand curve will shift out permanently.