Which has a larger effect on aggregate demand: an increase in government expenditure or an equal sized decrease in taxes? Explain your answer
What will be an ideal response?
The multiplier for a change in government expenditure is larger than the multiplier for a tax cut so the effect on aggregate demand from the increase in government expenditure exceeds that from the decrease in taxes. The difference occurs because with an increase in government expenditure on goods and services, real GDP is immediately increased. This increase then leads to a multiplier effect as household's incomes increase and so their consumption expenditure increases. With an equal sized tax cut, however, households save part of the increase in disposable income. As a result, the first impact on real GDP is smaller, which leads to a smaller effect after the multiplier is taken into account.
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What will be an ideal response?
According to the above table, a surplus exists when
A) the price is $1 per unit. B) the price is $2 per unit. C) the price is $3 per unit. D) the price is greater than $3 per unit.
When MFC < MRP, a firm in a competitive market will
A) stop hiring. B) hire more workers. C) earn fewer profits. D) layoff workers.
Why do we subtract import spending from total expenditures?
What will be an ideal response?