47. Suppose that business investment increases by $275 billion, and MPC 0.92. Co

Question

47. Suppose that business investment increases by $275 billion, and MPC 0.92. Compute the total cumulative impact on aggregate demand after an infinite number of spending cycles, in the space below. a. $1.65 Trillion $2.45 Trillion c. $3.44 Trillion 48. If taxes are decreased by $275 billion, MPC = 0.92. How much enters the economy in the 1st cycle? $275 Billiorn $253 Billion c. $210 Billion 49. Suppose that taxes are decreased by $275 billion, and MPC 0.92. Calculate the total cumulative impact on aggregate demand after an infinite number of spending cycles, in the space below. $412.5 Billion $1.98 Trillion $3.16 Trillion 50. The Laffer curve was developed by economist Art Laffer to explain how lowering high tax rates can a. Increase government tax revenue, encourage economic growth, increase job growth, and increase the incentive for saving and investment. Decrease government tax revenue, reduce economic growth, decrease job growth, and decrease the incentive for saving and investment. c. Decrease government tax revenue, but increase economic growth and increase unemployment. d. Increase government tax revenue, but decrease economic growth and decrease unemployment

Explanation / Answer

Q47

Answer

the spending multiplier=1/(1-MPC)=1/(1-0.92)=12.5

the increase in AD =increase in investment*spending multiplier

=275*12.5=3437.5=3.4375 trillion

Option c

Q49

Answer

Option c

the tax multiplier=-MPC/(1-MPC)=-0.92/(1-0.92)=-11.5

the increase in AD=tax multiplier*decrease in taxes

=(-11.5)*(-275)

=3162.5=3.16 trillion

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