Calculate the multiplier and the change in real GDP
What will be an ideal response?
With no imports and no income taxes, the multiplier equals 1/(1 ? MPC). So the multiplier is 1/(1 ? 0.8), which is 5.0 Then the $5 billion increase in investment increases real GDP by 5.0 × $5 billion, which is $25 billion.
You might also like to view...
Mike has been unemployed for over a year. He hasn't looked for a job in the last three months, but he's just started looking for work again. Because Mike started looking for a new job,
A) the labor force participation rate decreased. B) the unemployment rate increased. C) the unemployment rate decreased. D) the working-age population increased.
What is ‘market failure'? Explain one way in which government can help overcome such failure
What will be an ideal response?
What did Keynes and Hayek believe about government central planning?
a. Both believed that central planning could be used to allocate resources efficiently. b. Both believed that perverse political incentives would undermine the ability of central planners to allocate resources efficiently. c. Keynes believed that government central planning could improve on market outcomes; Hayek disagreed, arguing that both political incentives and insufficient information would undermine their ability to do so. d. Keynes believe that central planning would fail because the policy-makers did not have sufficient information to plan efficiently; Hayek believed that efficient central planning was possible if political decisions were made democratically.
In the short-run, higher prices can be caused by:
a. A decrease in aggregate supply, an increase in aggregate demand, or both. b. A decrease in aggregate supply, decrease in aggregate demand, or both. c. An increase in aggregate supply, increase in aggregate demand, or both. d. An increase in aggregate supply, a decrease in aggregate demand, or both. e. Central bank actions only.