What is the mechanism at work that causes the increase in a country's government spending to have an impact on foreign countries' production and income?
What will be an ideal response?
POSSIBLE RESPONSE: When government spending increases, gross domestic product (GDP) rises directly as government spending constitutes part of the aggregate demand for the country's production, as shown in Y (GDP) = AD (Aggregate Demand) = C + Id + G + X - M. Here, C = Domestic consumption, Id = Investment, G = Government expenditure, X = Exports, and M = Imports. Furthermore, the spending multiplier takes over, so the increase in GDP and income can be more than the increase in government spending. Imports rise together with the increase in GDP and income because imports are a positive function of GDP, i.e., M = M(Y). This country's imports are foreign exports. The increase in foreign exports increases aggregate demand for foreign production, so foreign production and income increase.
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The amount by which aggregate expenditures exceed those associated with the full-employment level of domestic output can best be described as
A. the multiplier. B. a recessionary expenditure gap. C. the average propensity to save. D. an inflationary expenditure gap.
How does the relationship between housing prices and rental rates provide evidence for or against the existence of a housing bubble?
What will be an ideal response?
All of the following utility functions rank bundles (q1,q2 ) in the same order except for which one?
A) q11/2 + q21/2 B) q11/2 q21/2 C) ln(q1 ) + ln(q2 ) D) All of the above rank bundles (q1,q2 ) in the same order
Why is it considered "ideal" for price to just equal marginal cost?