Question

(1) If the spending multiplier equals 10 and the actual equilibrium real GDP is $4 billion...

(1)

If the spending multiplier equals 10 and the actual equilibrium real GDP is $4 billion below potential real GDP, then other things being equal, _____ to reach the potential real GDP level.

Group of answer choices

autonomous spending needs to increase by $40 billion

real GDP needs to increase by $40 billion

autonomous spending needs to increase by $4 billion

real GDP needs to increase by $0.4 billion

autonomous spending needs to increase by $0.4 billion

(2)

Other things being equal, which of the following will increase aggregate expenditures?

Group of answer choices

An increase in domestic prices relative to foreign prices

A decrease in the interest rate

A decrease in real wealth

An increase in income taxes

A decrease in government purchases of goods and services

(3)

Discretionary fiscal policy involves

Group of answer choices

expansion of government revenues during a period of rapid growth.

contraction of government revenues during a recession.

automatic adjustments that affect the size of the budget deficit or surplus.

an intentional change in taxation or government spending.

(4)

​When a person's consumption goes from $8,000 to $12,000 when her disposable income goes from $10,000 to $15,000, her MPC equals:

Group of answer choices

​0.4.

​0.6.

​0.75.

​0.8.

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Homework Answers

Answer #1

1. Autonomous spending needs to increase by $0.4 billion

Reason: Multiplier = Change in GDP / Change in G

10 = 4 / Change in G

Change in G = 0.4 billion

2. A decrease in interest rate

Reason: A decrease in interest rate will increase investment, thereby leading to increase in AE (which has investment as a component)

3. Intentional change in taxation or government spending

Reason: Discretionary fiscal policy involves changing taxes or government spending to affect AD and thus GDP

4. 0.8

Reason: MPC = Change in C / Change in Y

MPC = (12000 - 8000) / (15000 - 10000)

MPC = 4000/5000

MPC = 0.8

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