Thank you very much for your help. I greatly appriciate it. A $100 million incre

Question

Thank you very much for your help. I greatly appriciate it.

A $100 million increase in government spending causes: an equal amount of change in equilibrium output in an open and a closed economy a larger change in equilibrium output in an open economy than in a closed economy a larger change in equilibrium output in a closed economy than in an open economy a larger change in equilibrium output in a closed economy than in an open economy if the marginal propensity to import is zero. QUESTION 38 Which of the following government policies is not considered a fiscal policy? government policies regarding the purchase of goods and services government policies regarding taxation government policies regarding money supply in the economy government policies regarding transfer payments and welfare benefits QUESTION 39 When the federal government runs a budget deficit it borrows money from the public by issuing bonds. interest payments on the existing debt decrease the US Mint prints the money to pay the deficit. the total value of the national debt decreases. QUESTION 40 Fiscal policy affects aggregate demand because: government purchases taxes affect corporate spending and so investment. taxes affect disposable income and so consumption is a category of aggregate demand All of these

Explanation / Answer

Solution:

Q- A $100 million increase in government spending causes

Option B: A large change in equilibrium output in an open economy than in a closed economy

Explanation: When government increase its spending. The output level increases by government spending x multiplier term. In an open economy the government multiplier is higher than a closed economy. So, output in open economy increase more than the closed economy.

Question 38: Which of the following government policies is not considered a fiscal policy.

Option C: Government policy regarding money supply in the economy.

Explanation: In fiscal policy, government uses its spending and taxation to influence the economy. Purchase of goods and services, taxation, transfer payments & unemployment benefits are the examples of fiscal policies. On the other hand, money supply is a tool of monetary policy that government uses to influence the economy.

Question 39: When the federal government runs a budget deficit

Option A: It borrows money from the public by issuing bonds.

Explanation: Budget deficit of the government is basically a situation when government revenue is less than its expenditure. It means government is not left money for any future investment. To cover this expenditure and interest payment (if government borrowed earlier also) government borrows money from public. This money often borrowed by issuing bonds to the public.

Question 40: Fiscal policy affects aggregate demand because:

Option D: All of these

Explanation: In fiscal policy, government uses its spending and taxation to influence the economy. Purchase of goods and services, taxation, transfer payments & unemployment benefits are the examples of fiscal policies. When government increases or decrease its spending it creates employment. Increase in employment level increase money with the public. Increased money boost consumption thus boost aggregate demand. When government reduces taxes, corporates and individuals are left with more money. Corporate uses this money for their new ventures and investment. While individuals are left with more disposable income that increase their consumption level.

Suppose investment falls by $200 and equilibrium output falls by $500. Given this information, we know that

Option D: None of these

Explanation: Multiplier= 1/(1-MPC)

-500/-200= 1/(1-MPC)

2.5= 1/(1-MPC)

1-MPC=1/2.5

1-MPC= 0.4

MPC= 1-0.4= 0.6

Question 43: Suppose the economy is a point B. A large decrease in the price level will move the economy to AS0

Option D: decrease, AS0

Explanation: When there is a decrease in price level the supply curve shift to the left. So, in the given question the decrease in price level will shift the supply curve from AS1 to AS0

On the other hand if there is a change in aggregate demand than supply changes along the supply curve.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.