Assume the marginal propensity to consume is .8 . To offset a fall in income of 1,000, the government should
a. increase taxes by $200.
b. raise taxes by $250.
c. increase government spending and taxes by 1,000.
d. cut taxes by $200.
e. both c and d.
C
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The long-run aggregate supply curve is vertical at $10 trillion, but the short-run aggregate supply curve intersects the aggregate demand curve at $12 trillion. From this, we know that
A) the economy is operating below full capacity in the short run, and will have to adjust by hiring more workers, thus reducing unemployment. B) the price level is too high. The only way long-run equilibrium can be restored is to lower the price level. C) adjustments will have to occur so that the long-run aggregate supply equals $12 trillion. D) adjustments will have to occur so that the short-run aggregate supply intersects the aggregate demand curve at $10 trillion.
The condition required for equilibrium to exist according to Keynesian analysis is that
a. foreign trade must be in balance. b. taxes must be equal to government spending. c. total planned injections must be equal to total planned leakages. d. employment must be full.
A ceiling on interest rates is likely to lead to
A. an increase in lending activity. B. more rapid capital formation by business. C. increases in hiring of labor. D. a shortage of loanable funds.