Suppose the MPC in the economy in Figure 10.2 equals 0.8 and the shift from AD0 to AD1 was caused by a decrease in investment of $30 billion. What will the total decrease in aggregate demand be (i.e., AD0 to AD2) as a result of the initial $30 billion decrease?
A. $240 billion.
B. $150 billion.
C. $37.5 billion.
D. $130 billion.
Answer: B
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Rational expectations are the theory according to which people optimally use all the information they have, including information about government policies, when forecasting the future.
Answer the following statement true (T) or false (F)
An increase in the unemployment rate may be represented as a movement from a point on the production possibilities frontier to a different point on the frontier
Indicate whether the statement is true or false
Suppose the economy's production function is Y = AK0.3N0.7. If K = 2000, N = 100, and A = 1, then Y = 246. If K and N each increase by 5 percent, and A is unchanged, by how much does Y increase?
A) 5% B) 10% C) 15% D) 20%
At equilibrium income:
a. planned and actual expenditure are equal. b. GDP will remained unchanged until an exogenous shock occurs. c. unplanned inventories are equal to zero. d. all of the above.