Suppose the marginal propensity to consume is 0.8. According to the model in the text, how much would equilibrium output go up if the government increased spending by $500 million (assuming all other factors are held constant)?
a) $400 million
b) $625 million
c) $900 million
d) $2,500 million
e) $4,000 million
Answer: d) $2,500 million
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Explain the difference between an open economy and a closed economy
What will be an ideal response?
Opportunity cost is best defined as the:
a. sum of all alternatives given up when a choice is made. b. money spent once a choice is made. c. highest-valued alternative given up when a choice is made. d. cost of a good minus the satisfaction obtained from consuming it. e. cost of capital resources used in the production of additional capital.
Suppose the value of income elasticity of demand for a private college education is equal to 1.5 . This means that
a. every $1 increase in income provides an incentive for a $1.50 increase in expenditures on private college education b. every $1.50 increase in income provides an incentive for a $1 increase in expenditures on private college education c. a 10 percent increase in income causes a 15 percent increase in the quantity of private college education purchased d. a 15 percent increase in income causes a 10 percent increase in the quantity of private college education purchased e. a 10 percent decrease in private college tuition will have a large enough income effect to increase spending on private college education by 15 percent
If the Fed were to unexpectedly increase the money supply, creditors would gain at the expense of debtors
a. True b. False Indicate whether the statement is true or false