Use the aggregate expenditures model and assume an economy is in equilibrium at $6 trillion which is $500 billion below full-employment GDP. If the marginal propensity to consume (MPC) is 0.75, full-employment GDP can be reached if government spending:
a. increases by $75 billion.
b. increases by $125 billion.
c. increases by $500 billion.
d. is held constant.
b
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When there is an expansionary gap, inflation will ________, in response to which the Federal Reserve will ________ real interest rates, and output will ________.
A. decline; lower; expand B. increase; raise; decline C. decline; lower; decline D. decline; raise; decline
What is "underground production"? Is it included in GDP?
What will be an ideal response?
When economists hold factors other than the one they are analyzing constant, they are demonstrating the principle of
a. circular flow analysis b. consumer sovereignty c. ceteris paribus d. normative economics e. scarcity modification
The discount rate is the interest rate charged by the central bank when it makes loans to commercial banks
a. True b. False Indicate whether the statement is true or false