Suppose that Congress allocates 5 billion to an energy-efficient appliance rebate program. It also raises taxes by 5 billion to keep the deficit from growing. If the marginal propensity to consume is 0.8, what is the effect on equilibrium GD
A) GDP does not change. B) GDP increases by 5 billion.
C) GDP increases by 25 billion. D) GDP increases by 4 billion.
Ques. 2How is the impact of expansionary monetary policy different in an open economy than in a closed economy?
What will be an ideal response?
Ques. 3Assume a closed economy with fixed taxes and the marginal propensity to consume is equal to 0.9. What is the government spending multiplier?
A) 10 B) 9 C) 5 D) 1
Ques. 4How will an increase in federal government spending without an increase in taxes affect real GDP and the price level in the short run in a closed economy and in an open economy?
What will be an ideal response?
Ques. 5In an open economy, the government purchases multiplier will be smaller the
A) larger the marginal propensity to consume. B) smaller the marginal propensity to import.
C) larger the tax rate. D) All of the above are correct.
Ques. 6How is the impact of expansionary fiscal policy different in an open economy than in a closed economy?
What will be an ideal response?
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