Question

A small closed economy have the following characteristics

consumption function=0.9y+100

planned investment=$460

government spending=$400

taxes=$0

1.The equation of the aggregate expenditures line is: *

a.AE = 0.9 Y + 560

b.AE = 0.9 Y + 460

c.AE = 0.9 Y + 960

d.AE = 0.9 Y + 160

2.The government spending multiplier is: *

a,1

b.0.1

c.10

d.0.01

3.The slope of the aggregate expenditures curve of this economy is:

a.100

b.460

c.400

d.0.9

4.The Equilibrium is:

a.Y = 9,600

b.Y = 9,700

c.Y = 9,500

d.None of the above

5.Suppose potential GDP is equal to 12,000. By how much should government expenditures increase to reach potential GDP?

a.2400

b.10

c.2390

d.240

Answer #1

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c. Check the solution, as we did in class, by showing that at
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$ billion
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G
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