If the government wishes to increase GDP by $1,200b, and the MPC is 0.75, it should:
A. increase its spending by $300b.
B. decrease its spending by $900b.
C. increase its spending by $900b.
D. decrease its spending by $300b.
Answer: A
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Why does an increase in the price level tend to cause the consumption function to shift downward?
A. An increase in the price level decreases disposable income. B. An increase in the price level increases the demand for fixed money assets. C. An increase in the price level decreases the value of fixed money assets. D. An increase in the price level decreases saving and increases debt.
Answer the following statement(s) true (T) or false (F)
1. In a competitive equilibrium, the industry's output is produced at the lowest possible cost because each firm has the goal of minimizing its cost. 2. Higher costs, whether fixed or variable, will cause a leftward shift in the industry's short-run supply curve. 3. The number of firms in an industry is fixed in the short run. 4. A new licensing fee would cause an immediate upward shift in an industry's short-run supply curve. 5. In a long-run competitive equilibrium, both more efficient and less efficient firms earn zero economic profit.
The free rider problem suggests that a producer will tend to: i. produce more than the optimal quantity of a public good. ii. produce less than the optimal quantity of a public good. iii. produce the optimal quantity of a public good if it is funded out of tax revenue
a. (i) only b. (ii) only c. (i) and (iii) only d. (ii) and (iii) only
Using Figure 1 above, if the aggregate demand curve shifts from AD3 to AD2 the result in the long run would be:
A. P1 and Y2. B. P2 and Y1. C. P3 and Y1. D. P3 and Y2.