Initially, the economy is in long-run equilibrium. The aggregate demand curve then shifts $80 billion to the left. The government wants to change spending to offset this decrease in demand. The MPC is 0.75 . Suppose the effect on aggregate demand of a tax change is 3/4 as strong as the effect of a change in government expenditure. There is no crowding out and no accelerator effect. What should
the government do if it wants to offset the decrease in real GDP?
a. Raise both taxes and expenditures by $80 billion dollars.
b. Raise both taxes and expenditures by $10 billion dollars.
c. Reduce both taxes and expenditures by $80 billion dollars.
d. Reduce both taxes and expenditures by $10 billion dollars.
a
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One important difference between monopoly and monopolistic competition is the
A) slope of the demand curve that the firms faces. B) point there are no barriers to entry in monopolistic competition. C) greater restriction of output in monopolistic competition. D) result that the marginal revenue and demand curves are the same for a monopoly.
If an agent is risk averse and a principal is risk neutral, if the agent pays the principal a fixed fee
A) all risk is eliminated. B) the risk neutral person bears all the risk while the risk averse person bears none. C) the risk averse person bears all the risk while the risk neutral person bears none. D) the principal and agent share risk equally.
Public versus private initiatives to expand canals and railroads in the United States:
a. featured a large percentage of government investment. b. featured a small percentage of government investment. c. were dominated by private investment. d. were exclusively private due to "strict constructionism."
The reserve requirement is:
A. the regulation that sets the minimum fraction of deposits banks must hold in reserve. B. the dollar amount of cash banks must keep on hand and not loan out. C. currently set at $2 million for most banks. D. a loose guideline for how much banks must hold in reserves.