Initially, the economy is in long-run equilibrium. The aggregate demand curve then shifts $50 billion to the left. The government wants to change its spending to offset this decrease in demand. The MPC is 0.80 . Suppose the effect on aggregate demand from a change in taxes is 4/5 the size of the change from government expenditures. There is no crowding out and no accelerator effect. What should
the government do if it wants to offset the decrease in aggregate demand?
a. Raise both taxes and expenditures by $5.56 billion dollars.
b. Raise taxes by $40 billion dollars and increase expenditures by $50 billion dollars.
c. Reduce taxes by $10 billion dollars and increase expenditures by $10 billion dollars.
d. Reduce taxes by $5.56 billion dollars and increase expenditures by $5.56 billion dollars.
d
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Countries with different initial levels of per capita income may gravitate to a similar level of per capita income. Economists call this phenomenon ________
A) convergence B) simulation C) gravitation D) depreciation
Both monopolistically and perfectly competitive firms earn only normal profits in the long run
a. True b. False Indicate whether the statement is true or false
The nominal interest rate equals the:
A. inflation rate minus the real interest rate. B. real interest rate minus the inflation rate. C. real interest rate plus the inflation rate. D. real interest rate divided by the inflation rate.
By shifting aggregate demand, monetary policy can affect ________ and ________.
Fill in the blank(s) with the appropriate word(s).