Suppose there is a $200 billion recessionary ga
What will be an ideal response?
The expenditure multiplier is equal to 1/(1 - MPC). So, with a marginal propensity to consume of 0.75, the expenditure multiplier is 1/(1 - 0.75 ) = 1/0.25, which is 4. Dividing the size of the recessionary gap, $200 billion, by 4 shows that government expenditure needs to be changed by $50 billion to restore the economy back to potential GDP. Because a recessionary gap occurs when real GDP is less than potential GDP, real GDP needs to increase in order for it to equal potential GDP. So, because real GDP needs to be increased, government expenditure needs to be increased.
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The slope of the consumption function is equal to
a. the change in consumption divided by the change in disposable income. b. the change in consumption divided by the change in personal income. c. the change in disposable income divided by the change in consumption. d. the change in national income divided by the change in consumption.
According to the text, which of the following consequences could we predict most confidently if the federal government was effectively required, by a constitutional amendment,
to match expenditures and tax revenues (balance the budget) in each fiscal year? A) An end to discretionary fiscal policy B) An end to efforts to manipulate the economy for partisan political purposes C) Frequent and sudden changes in previously legislated tax rates and expenditure commitments D) Less unemployment but more inflation
What does the income elasticity of demand measure?
What will be an ideal response?
Which statement is true?
A. The largest merger in history involved Chase Manhattan Bank. B. There have been only two mergers in our entire history valued at over $15 billion. C. It is illegal under our antitrust laws for two firms in the same industry to merge. D. None of these statements are true.