On the left-hand graph, Ms represents the supply of money and MD represents the

Question

On the left-hand graph, Ms represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs. Suppose the graphs are drawn to show the effects of an increase in government purchases. If it were not for the increase in r from r_1 to r_2. then there would be no crowding out. the AD curves that actually apply, before and after the change in government purchases, would be separated horizontally by the distance equal to the multiplier times the change in government purchases. All of the choices are correct. the lull multiplier effect of the increase in government purchases would be realized. The following facts apply to a small, imaginary economy. Consumption spending is $5,200 when income is $8,000. Consumption spending is S5.536 when income is $8,400. Refer to Scenario 34-2. The marginal propensity to consume for this economy is 0.650. 0.840. 0.659. 0.650 or 0.659, depending on whether income is $8,000 or $8,400. One determinant of the natural rate of unemployment is the rate of growth of the money supply. All of the choices are correct. expected inflation rate. minimum wage rate.

Explanation / Answer

15) B

16) Marginal propensity to consume is increase in consumption due to one unit increase in income. here income increases by (8400-8000) =400

and consumption increases by (5536 -5200) =336

that means MPC = 336/400 =0.84

17) All of the above are determinant of natural level of unemploy ment because excess money supply will lead to increase in wage level for which AS of labour will increase. Expected inflation also affect unemployment rate in short run but in long run unemployment rate will go tosame level.

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