If the government increases expenditure by $40 billion and increases tax revenue by $40 billion, what is the impact on aggregate demand? Explain your answer
What will be an ideal response?
Aggregate demand increases. The government expenditure multiplier shows that the increase in government expenditure increases aggregate demand by more than $40 billion. And the government tax multiplier shows that the increase in tax revenue decreases real GDP by more than $40 billion. But, the magnitude of the government expenditure multiplier exceeds the magnitude of the tax multiplier, so the net effect, which is the balanced budget multiplier, is that aggregate demand increases.
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Suppose that we are at a point on the money demand schedule where (M/P) = 500. At a constant interest rate, the quantity of money demanded increases when real income ________ so that ________
A) rises, the money demand schedule shifts to the right B) rises, the money demand schedule shifts to the left C) rises, we move downward along the money demand schedule D) falls, the money demand schedule shifts to the left E) falls, we move upward along the money demand schedule
In the new classical model, stabilization policies
a. cannot affect output and employment in either the short run or the long run. b. affect output and employment only in the short run. c. have no effect on output and employment, even in the short run. d. affect output and employment only in the long run.
Today, the share of international trade in U.S. GDP is
A) almost 0 percent. B) about 10 percent. C) close to 30 percent. D) more than 99 percent.
As we move down a straight-line demand curve, the price elasticity becomes
a. larger. b. smaller. c. larger, then smaller. d. smaller, then larger.