The economy has no international trade and no income taxes. In the short run, if government purchases were to decrease by $25 billion and the marginal propensity to consume was equal to 0.66 then real GDP would decrease by
A) $16.5 billion.
B) $37.8 billion.
C) $8.25 billion.
D) $75 billion.
D) 75 billion
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In the above table, dissaving occurs at every level of income below
A) $5,000. B) $7,000. C) $10,000. D) $8,000.
According to classical economists, the government should increase government purchases when
A) the benefits of the spending exceed the costs. B) the economy is in a recession. C) the economy is likely to go into a recession in the next six months to a year. D) inflation is lower than its targeted level.
The long-run trend in real GDP is upward. How is this possible given business cycles? What explains the upward trend?
Because firms in perfectly competitive markets can sell any quantity without driving down prices, they should:
A. produce as much as possible to maximize profits. B. produce at the lowest cost per unit to maximize profits. C. increase quantity until the additional profit it earns on its last unit sold is zero. D. try to flood the market.