Assume the economy is in recession and real GDP is below full employment. The marginal propensity to consume (MPC) is 0.50, and the government follows Keynesian economics by using expansionary fiscal policy to increase aggregate demand (total spending). If an increase of $1,000 billion aggregate demand can restore full employment, the government should:
a. increase spending by $250 billion.
b. decrease spending by $500 billion.
c. increase spending by $1,000 billion.
d. increase spending by $500 billion.
d
You might also like to view...
Distinguish between real GDP and potential GDP and describe how each grows over time
What will be an ideal response?
The public debt is the:
a. Difference between current government expenditures and revenues b. Total of all past deficits minus all past surpluses c. Ratio of all past deficits to all past surpluses d. Amount of U.S. paper currency in circulation
Suppose individuals expect future output to be lower and future interest rates to be lower. Given this information, how will individuals alter consumption in the current period? Explain
What will be an ideal response?
Which of the following is an example of frictional unemployment?
A. Hector looked for a job for five weeks after finishing college. He turned down several jobs that didn't fit his skills, but now has a job that requires the expertise he gained in college. B. Marsha was laid off from her job with the airline because the recession has reduced the demand for airline travel. She expects to get her job back when the economy picks up. C. George is an unskilled worker who mows lawns in the summer, but is unemployed the rest of the year. D. Dora lost her job when the textile factory closed. She does not have skills to work in another industry and has been unemployed for over a year.