This Question: 1 p Suppose that an economy is in equilbrlium at a real GoP o $12

Question

This Question: 1 p Suppose that an economy is in equilbrlium at a real GoP o $12 trillon at a price level of 100. An iscrease in auhonomous expendithures of 50 20 iion taes place. The current mutiplier s 10 it the short rum aggregate supply curve s horizontal, the new eqailibrium value of real GDP will be O B. $0 20 billion Suppose that an economy is in equilibrium at a real GDP of $12 trillion at a price level of 100 The shor-un aggnegate supply curve is upeward-sloping and there is an increase in atonomous expendtures of $0 20 trillon This ncreave in espendhures enabled e real GDP to Increase bo $12.60 tilion The change ih the prike level has changed the multipler to O A. 3 000 OB, 980 OC. 12 TS O D. 8 500

Explanation / Answer

a) As the multiplier in the economy is 10. Any increase in the autonomous expenditure will increase the total amount by a multiple of the multiplier value. The new equilibrium value will be 12 Trillion + (0.20 x10) = 14 Trillion. The answer is "C".

b) Here, the total increase in the total output is only 0.60. The economy increases from 12 trillion to 12.60 trillion. After an increase of 0.20 in the economy. The total multiplier will be only 3. The answer is "A".

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