ECO 202-05 Principles of Macroeconomics (FA17) st: ECO 202 Final Exam Time Remai

Question

ECO 202-05 Principles of Macroeconomics (FA17) st: ECO 202 Final Exam Time Remaining: 02:3208 Submit Tes 19 of 95 (14 complete) This Test: 95 pts possib is Question: 1 pt no economists estimate the government expendere mutipier and com e up with diferent results One estimates te ma an estimate ol 1.25 ler at 075 whle the oder comes up with Explain why these estimates are diferent in terms of the assumptions that each economist is making A. Compared to the first economist, the second economist is assuming a longer time frame for the effects of the increased expendture to be observed O B. Compared to the first ecomomilst the seciond econsmist must be assuming either a larger induced increase in consumption, a smaler crowding out offct,o both O C. smaler Induced increase in consumption, a larger crowding out effect, or Compared to the first economistth* second economist must be assuming ether a both O D. Unlke the frst economist,the second economist must be assuming that the govenment expendihure is devoted to useld projects If the cument value of GOP is $13 28 trilion and the using te mhler estimate ofthe frst economist ispercent (Round your re pose toho der placed ) s planning to increase spending by $700 billion (allin one year), the percentage increase in GDP ent (Reurdyorrespoce bheo ofthe second economist andthe same arrent value of GDP te percentage ncrease in GOpis[ decimal places) Cick to select your an 6 7 8 9 8

Explanation / Answer

b) Since the mutiplier given by the second economist is larger, she is assuming a larger induced increase in consumption and a smaller crowding out effect.

Change in GDP as per first economist = 700 * 0.75 = 525bn dollars

Change in GDP as per second economist = 700 * 1.25 = 875 dollars

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