AD will shift to the right, other things being equal, when the government budget

Question

AD will shift to the right, other things being equal, when

the government budget deficit increases because government purchases rose

the government budget deficit increases because taxes fell

the government budget deficit increases because transfer payment rose

any of the above circumstances exists

The federal government buys $20 million worth of computers from Dell. If the MPC is 0.60, what will be the impact on aggregate demand, other things being equal?

Aggregate demand will increase $12 million.

Aggregate demand will increase $13.33

Aggregate demand will increase $50 million

If the government wanted to move the economy out of a current recession, which of the following might be an appropriate policy action?

Decrease taxes

Increase government purchases of goods and services

increase transfer payments

any of the above

Aggregate demand will increase $20 million

the government budget deficit increases because government purchases rose

the government budget deficit increases because taxes fell

the government budget deficit increases because transfer payment rose

any of the above circumstances exists

The federal government buys $20 million worth of computers from Dell. If the MPC is 0.60, what will be the impact on aggregate demand, other things being equal?

Aggregate demand will increase $12 million.

Aggregate demand will increase $13.33

Aggregate demand will increase $50 million

If the government wanted to move the economy out of a current recession, which of the following might be an appropriate policy action?

Decrease taxes

Increase government purchases of goods and services

increase transfer payments

any of the above

Aggregate demand will increase $20 million

Explanation / Answer

1. any of the above circumstances exists

2. Aggregate demand will increase $50 million. (Explanation: Multiplier = 1/MPS = 1/0.40 = 2.5. So, AD will increase by 20* 2.5 = $50 million)

3. any of the above

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