5 the government ereased is spending and is asation by equal tump sum of SI bilt

Question

5 the government ereased is spending and is asation by equal tump sum of SI biltion, equilibium CD would A) increase by less than $1 billion. B) increase by more than $1 billion. C) remain unchanged. D) decrease by more than $1 billion. E) decrease by less than $1 billion. 26) Consider the AD/AS macro model. Suppose there is a simultaneous increase in wage rates and in exports The result will be A) an indeterminate change in real GDP and a rise in the price level. B) an indeterminate change in real GDP and a fall in the price level. C) a rise in real GDP and a rise in the price level. D) a rise in real GDP and a fall in the price level. El a rise in real GDP but price level changes will be indeterminate. hlys

Explanation / Answer

Answer : 25) D. decrease by more than $1 billion. Because the equilibrium condition depicts that there is equal relationship between GDP and government expenditure. Now if government expenditure decrease by $1 billion then the AE curve shift to downward as a result GDP or national income decrease by more $1 billion.

26) C. a rise in the real GDP and a rise in the price level. Because increase in wage rate means increase in demand and increase in export means increase in supply. Therefore, at new equilibrium there is a rise in both price and real GDP or national income.

2) C. the AE function will shift up parallel to itself and equilibrium national income will rise. Because greater test of foreigners increase the government expenditure as a result Aggregate Expenditure curve shift upward and national income or GDP rise.

3) E. down; less; higher. Because there is a negative relationship between investment and interest rate and positive relationship between investment and economic growth. Hence increasing demand for investment down the interest rate as a result household saving is less but the future growth rate for potential output increase.

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