b) Refer to the above data. At the $100 level of income, the average propensity
ID: 1122224 • Letter: B
Question
b) Refer to the above data. At the $100 level of income, the average propensity to save is: A. 10. B. 20. C. 25 D. 90 5. a) If the MPC is 70 and investment increases by $3 billion, the equilibrium GDP will (15 Points) A. increase by $10 billion. B. increase by $2.10 billion. C. decrease by $4.29 billion. D. increase by $4.29 billion b) If the MPC is 6, the multiplier will be: B.6.0. C. 2.5 D. 1.67 c) Assume the MPC is 2/3. If investment spending increases by $2 billion, the level of GDP will increase by A. $3 billion B. $2/3 billion. C. $6 billion D. $2 billion. 6. Discuss the options used by fiscal policy to stabilize the economy. (10 Points) 7. Using examples, evaluate the five characteristics of a good medium of exchange. (15 Points)Explanation / Answer
5. a) Ans: Increase by $10 billion
Explanation:
Multiplier = 1 / (1 - MPC)
= 1 / 0.3
= 3.33
Increase in equilibrium GDP = 3.33 * $3 billion = $10 billion
b) Ans: 2.5
Explanation:
Multiplier = 1 / (1 - MPC)
= 1 / 0.4
= 2.5
c) Ans: $6 billion
Explanation:
Multiplier = 1 / (1 - MPC)
= 1 / (1 - 2/3)
= 1 / (1/3)
= 3
Increase in equilibrium GDP = 3 * $2billion = $6 billion
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