Using the same mpc and multiplier as before (we had chosen the example where mpc = 0.8, resulting in mult = 5)
What will be an ideal response?
allows us to predict the impact of government spending on economic equilibrium. The multiplier applies to government spending in exactly the same way that it does to changes in intended investment. Therefore an increase in government spending of 80 leads to an equilibrium shift of 80 3 5 = 400. Looking at it the other way, if we start with the goal of an increase of 400 in Y, we can divide 400 by 5 to find the needed quantity of ?G: 400/5 = 80. (chapter 10 page 231)
You might also like to view...
The President of the United States appoints the
A) directors of the Federal Reserve regional banks. B) presidents of the Federal Reserve regional banks. C) Federal Advisory Council. D) members of the Board of Governors of the Federal Reserve.
In economics, physical capital includes
A) money. B) bank accounts. C) machinery. D) shares of stock.
A typical worker's normal or average income is called
a. the life cycle. b. permanent income. c. transitory income. d. in-kind transfers.
According to the textbook, of all barriers to entry, the most important are those that are due to
A) ownership of a key input. B) economies of scale. C) government-imposed barriers. D) the Herfindahl-Hirschman Index.