Note that at the original AD level, there is an equilibrium at 400, where AD = Y, and there is significant unemployment.
What will be an ideal response?
After the addition of 80 in government spending (G), the new equilibrium is at the full-employment level of 800, where AD1 = Y. (You can check other levels in the table to make sure that it is the only level at which AD1 = Y.) Figure 10.1 shows the same thing graphically. The aggregate demand schedule moves up by 80 at each level of income, so that the horizontal intercept of the AD line moves up from 80 to 160. The slope of the AD line remains the same, since there has been no change in the mpc. The change in equilibrium income is equal to the change in government spending times the multiplier (chapter 10 page 231)
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Teaser interest rates refer to
A) the initial rates that are typically below market rate and are offered by lenders to entice the clients to borrow. B) mortgage rates. C) rates charged on all subprime mortgages. D) none of the above.
Externalities can cause the market mechanism to
a. malfunction. b. improve. c. operate efficiently. d. move up toward the production possibility curve.
Which of the following is an example of a third variable causing two other variables?
a. During a theatrical performance, the wind and flying kites both increased. b. During a thunderstorm, felled trees and the sale of oranges both increased. c. During a harsh winter, car accidents and heating bills both increased. d. During an exciting Super Bowl game, heart attacks and snowfall both increased.
Assuming there is no government or foreign sector, the formula for the multiplier is
A. 1 - MPC. B. 1/(1 + MPC). C. 1/(1 - MPC). D. 1/MPC.