GIVEN: Assume the following for the long run: 1. For every 1% increase (decrease

Q: GIVEN: Assume the following for the long run: 1. For every 1% increase (decrease

Ans: 75 Explanation: Multiplier = 1 / (1 - 0.8) = 5.From the assumption 1 & 2, it is clear that if crowding-out effect are taken into consideration, net government spending increases by $15 billion. This means equilibrium output increases by $75 billion (i.e $15 * 5).

ID: 1211200 • Letter: G

Question

GIVEN:

Assume the following for the long run:

1. For every 1% increase (decrease) in interest rate, planned investment decreases (increases) by $5 billion.

2. For every $10 billion increase (decrease) in government spending, interest rate increases (decreases) by 1%.

3. The MPC = 0.8

QUESTION (show all steps): Taking the crowding-out effect into consideration, if government spending increases by $30 billion, equilibrium output increases by ___ billion.

A. 175

B. 280

C. 75

please show all work

Consumption (C) $600 billion Planned Investment (I) $300 billion Government Spending $150 billion

Explanation / Answer

Ans: 75

Explanation:

Multiplier = 1 / (1 - 0.8) = 5.From the assumption 1 & 2, it is clear that if crowding-out effect are taken into consideration, net government spending increases by $15 billion. This means equilibrium output increases by $75 billion (i.e $15 * 5).

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GIVEN: Direct materials inventory December 1, 2010 = $10,000 December 31,2010 =

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GIVEN: Assume the following for the long run: 1. For every 1% increase (decrease

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