Answer the following statements true (T) or false (F)
1) The greater the MPC, the greater the multiplier.
2) The multiplier is equal to the reciprocal of the MPC.
3) The multiplier shows the relationship between changes in a component of spending, say,
investment, and the consequent changes in real income and output.
4) Economists widely agree that the value of the real-world multiplier is 2.5.
5) If the MPC is .9 and investment spending increases by $20 billion, real GDP will increase by
$200 billion.
1) T
2) F
3) T
4) F
5) T
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All actions and purchases, even those of wealthy people, involve a sacrifice.
Answer the following statement true (T) or false (F)
The downward slope of a demand curve
A) represents the law of demand. B) shows that as the price of a good rises, consumers increase the quantity they demand. C) indicates how the quantity demanded changes when incomes rise and the good is a normal good. D) indicates how demand changes when incomes rise and the good is a normal good. E) indicates how demand changes when the price changes and the good is a normal good.
Assume that the size of the underground economy increases both absolutely and relatively over time. As a result:
a) real GDP will rise more rapidly than nominal GDP. b) GDP will tend to increasingly understate the level of output through time. c) GDP will tend to increasingly overstate the level of output through time. d) the accuracy of GDP will be unaffected through time.
According to the Taylor rule, if real GDP rises 1 percent above potential GDP, the Fed should raise the federal funds rate, relative to the current rate of inflation, by:
A. 0.5 percentage point. B. 1 percentage point. C. 1.5 percentage points. D. 2 percentage points.