If the marginal propensity to consume is 0.2 and the government increases its spending by ¥1 trillion, how much aggregate demand for goods and services will be produced? If the crowding-out effect is very strong, would the increase in government spending be still effectiv
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- Differentiate the multiplier effect and crowding-out effect that explain the causes of the differences of government spending in aggregate demand.Suppose that the MPC is 0.60; there is no investment accelerator; and there are no crowding-out effects. If government expenditures increase by $25 billion, then aggregate demand shifts rightward by $62.5 billion. shifts rightward by $50.0 billion. shifts rightward by $32.5 billion. None of the above is correct.Why might politicians prefer government spending increases instead of tax cuts to increase aggregate demand? tax multipliers are larger than government spending multipliers government spending multipliers are larger than tax multipliers politicians can direct government spending to their supporters politicians can direct tax cuts to their supporters government spending multipliers are larger than tax multipliers and politicians can direct government spending to their supporters
- Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would a. always shift aggregate demand right by a smaller amount than the increase in government expenditures. b. always shift aggregate demand right by a larger amount than the increase in government expenditures. c. shift aggregate demand right by a larger, equal, or smaller amount than the increase in government expenditures. d. always shift aggregate demand right by the same amount as the increase in government expenditures.Suppose that the MPC is 0.60; there is no investment accelerator; and there are no crowding-out effects. If government expenditures increase by $25 billion, then aggregate demand Answer shifts rightward by $62.5 billion. shifts rightward by $50.0 billion. shifts rightward by $32.5 billion. None of the above is correct.Suppose the government reduces taxes by $20 billion and that there is no crowding-out effect and the MPC is .75 then the total effect of the tax cut on aggregate demand is a) 50 billion b) 60 billion c) 70 billion d) 80 billion
- Suppose that out of the original 100 of government spending, 33 will be recycled back into purchases of domestically produced goods and services in the second round and 10.89 is spent in the third round. Following this multiplier effect, what will the value of the total aggregate expenditures be after the fourth round in the cycle is completed?Assuming no crowding-out, investment-accelerator, or multiplier effects, a $100 billion increase in government expenditures shifts aggregate demand a. right by $100 billion. b. left by $100 billion. c. left by more than $100 billion. d. right by more than $100 billion.If the marginal propensity to consume is equal to 0.8, and the government injects $50,000,000 of spending into the economy, then the shift of the AD curve BEFORE crowding-out would be:
- If the MPC is 0.80 and there are no crowding-out or accelerator effects, then an initial increase in aggregate demand of $100 billion will eventually shift the aggregate demand curve to the right by Answer $80 billion. $125 billion. $500 billion. $800 billion.The change in aggregate demand that results from fiscal expansion changing the interest rate is called the a. multiplier effect. b. crowding-out effect. c. accelerator effect. d. Ricardian equivalence effect.Suppose an economy is initially in equilibrium at its potential output level. As a result of an unexpected crisis in the financial markets, the AD curve suddenly shift to the left by a horizontal distance equal to $140 billion. Suppose the government has decided to restore the economy to its initial level of output by simultaneously increasing its spending and increasing taxes (so that it does not run into a deficit). Assuming the marginal propensity to consume in this economy is 0.25, by how much must the government increase its spending (and taxes) to achieve its goal? (Calculate your answer in billions of CAD, round it to one decimal places, and write it without units. E.g., write 1.0 for $1 billion.
