According to the Multiplier Model, if firms cannot supply the level of output de

Question

According to the Multiplier Model, if firms cannot supply the level of output demanded at existing prices, they will:

Assuming all other shift factors remain constant, if productivity and wages both rise by 3%, then the SAS Curve does not shift.

True
False

In the Multiplier Model, if the mpe is 0.75 and autonomous investment increased by $30 billion, equilibrium income would increase by:

A. cut production until the excess supply is eliminated. B. raise production until the excess demand is eliminated. C. cut prices until the excess supply is eliminated. D. raise prices until the excess demand is eliminated.

Explanation / Answer

A) raise production until the excess demand is eliminated.

b) statement is true.(as raise in productivity = wage). Thereis no profit.

C) Multiplier = 1/(1-.75) = 4

equilibrium income = 30*4 = $120bn

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