1 Which of the following explains why the government should not increase spendin

Question

1 Which of the following explains why the government should not increase spending by the entire amount of the AD shortfall to move the economy to full employment?

d Equilibrium price level and rate of output should both increase.

3 Which of the following fiscal policies would cause a decrease in aggregate expenditures?

4 A bank with $20,000 of reserves and a reserve ratio of 25 percent could support total transactions-account balances of at most:

5 Compared with crowding out in a closed economy, crowding out in an open economy:

Explanation / Answer

1) Option C. Spending multiplier tells us how much government should increase spending to close the gap created

2) Option D. When reserve ratio is reduced, money supply is increased. This shifts AD to the right and so price and output both are higher

3) Option D. Aggregate spending is positively related to government spending and inversely related to taxes.

4) Option C. This is because RR is 25% of deposits which is 20000 so this implies deposits = 20000/25% = 80000

5) Option D

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.