Question 17 (1 point) As shown in the Exhibit, if GDP is $7 trillion, the econom

Question

Question 17 (1 point)

As shown in the Exhibit, if GDP is $7 trillion, the economy experiences unplanned inventory:

Question 17 options:

depletion of $1 trillion.

depletion of $2 trillion.

accumulation of $1 trillion.

accumulation of $2 trillion.

Question 19 (1 point)

If the marginal propensity to save (MPS) is 0.10, the value of the spending multiplier is:

Question 19 options:

a) 1

b) 9

c) 10

d) 90

Question 22 (1 point)

If MPC = 0.8 and the economy is in equilibrium $500 below full-employment equilibrium, how much should government spending change to achieve full employment?

Question 22 options:

a) -100

b) +80

c) -80

d) +500

e) +100

Question 28 (1 point)

In the Exhibit, higher price levels allow producers to earn higher profits, stimulating production and employment in:

Question 28 options:

the segment labeled ab.

the segment labeled bc.

the segment labeled cd.

both segment bc and segment cd.

the entire curve.

a)

depletion of $1 trillion.

b)

depletion of $2 trillion.

c)

accumulation of $1 trillion.

d)

accumulation of $2 trillion.

Explanation / Answer

Question 17

As shown in the Exhibit, if GDP is $7 trillion, the economy experiences unplanned inventory, so there must be depletion of $2 trillion real output so that the planned aggregate expenditure becomes equal to actual aggregate expenditure and economy come back to its equilibrium.

Hence option b is the correct answer.

(19)

If the marginal propensity to save (MPS) is 0.10, the value of the spending multiplier is:

Multiplier = 1/MPS

= 1/0.10

= 10

Hence option c is the correct answer.

(22)

If MPC = 0.8 and the economy is in equilibrium $500 below full-employment equilibrium,

Multiplier = 1/MPS

=1/1-MPC

= 1/1-0.8

= 1/0.2

=5

Since the gap is $500, so the government should spend = $500/5

= +$100

So government should spend +$100 for reaching to an equilbrium point.

Hence option e is the correct answer.

(28)

In the Exhibit, higher price levels allow producers to earn higher profits, stimulating production and employment in: the segment labeled bc.

This is because in between the segments bc only, the price level, employment, profit, and production all increases. Hence option second which is segment bc is the correct answer.

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