Initially, the economy is in long-run equilibrium. Aggregate demand then shifts leftward by $50 billion. The government wants to increase its spending in order to avoid a recession. If the crowding-out effect is always one-third as strong as the
multiplier effect, and if the MPC equals 0.6, then by how much do government purchases have to increase in order to offset the $50 billion leftward shift?
a. by $90 billion
b. by $60 billion
c. by $20 billion
d. by $30 billion
Answer: d
You might also like to view...
Robinson spends all his income on mangos and bananas. Mangos cost $3 per pound. Robinson's marginal utility is 30 for the last pound of mangos purchased and 10 for the last pound of bananas
If Robinson maximizes his utility from consuming these goods, the price of bananas is A) $0.50 per pound. B) $1 per pound. C) $2 per pound. D) $3 per pound.
Which of the following is a definition of the real interest rate in a world with a positive inflation rate?
a. The percentage increase in the borrower's purchasing power from taking a loan b. The percentage decrease in the borrower's dollars from taking a loan c. The percentage increase in the lender's purchasing power from making a loan d. The percentage increase in the lender's dollars from making a loan e. The percentage decrease in the lender's dollars from making a loan
When the rate of cyclical unemployment is zero, the
a. natural rate of unemployment must also be zero b. rate of frictional unemployment must be negative c. economy must have entered a recessionary stage d. Keynesian aggregate supply curve must be horizontal e. economy is considered to be at full employment
The demand for electricity is more elastic in the long run than in the short run because
A. consumers can shift to more efficient electrical appliances in the long run. B. solar energy will eventually replace electricity in the long run. C. government regulation of electricity producers is most effective in the long run. D. more electricity can be produced in the long run.