5 the government ereased is spending and is asation by equal tump sum of SI bilt

Question

5 the government ereased is spending and is asation by equal tump sum of SI biltion, equilibium CD 25 ohegovernment decreased its spending and its taxation by equal iump sum of S1 billion, equi would A) increase by less than $1 billion. B) increase by more than $1 billion. C) remain unchanged. D) decrease by more than $1 billion. E) decrease by less than $1 billion. 26) Consider the AD/AS macro model. Suppose there is a simultaneous increase in wage rates and in exports The result will be A) an indeterminate change in real GDP and a rise in the price level. B) an indeterminate change in real GDP and a fall in the price level. C) a rise in real GDP and a rise in the price level. D) a rise in real GDP and a fall in the price level. E) a rise in real GDP but price level changes will be indeterminate. AG

Explanation / Answer

Q25
Answer
no option is correct
if the government decreased its spending and its taxation by an equal lump sum of $1 billion equilibrium GDP would
if MPC=0.9
spending multiplier is=1/(1-0.1)=10
and tax multiplier=-.9/(1-.9)=-9
so it will decrease it by 10 billion and increase by 9 billion, in total it will decrease by 1 billion

Q26
Option C
the increase in export increases RGDP and the increased wages increases the price level

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