QUESTION 14 Macroeconomic policy affects aggregate output and price level by shi

ID: 1121692 • Letter: Q

Question

QUESTION 14

Macroeconomic policy affects aggregate output and price level by shifting

AD in the long run

SRAS in the long run

AD in the short run

SRAS in the short run

10 points

QUESTION 15

If government spending increases by $40 billion and marginal propensity to consume c = 0.8, AD shifts

To the right by $200 billion

To the left by $200 billion

To the right by $400 billion

To the left by $400 billion

10 points

QUESTION 16

Let marginal propensity to consume c = 0.9. In order to shift AD to the left by $200 billion, the government needs to

increase spending by $20 billion

decrease spending by $20 billion

increase spending by $40 billion

decrease spending by $40 billion

AD in the long run

SRAS in the long run

AD in the short run

SRAS in the short run

1- the macroeconomic policies alter the output levels by shifting the AD in short run, by using fiscal or monetary policies,

so answer is C

2- now with MPC in hand we can calculate the multiplier,

multiplier = 1/1-MPC = 1/0.2 = 5

THUS IF SPENDINGS INCREASE BY 40 THEN AGGREGATE DEMAND SHIFT TO THE RIGHT BY 200 BILION

3- HERE WE NEED TO CALCULATE THE MULTIPLIER FIRST , MULTIPLIER IS 1/1-MPC = 1/0.1 = 10

SO THE SPENDINGS HAS TO BE DECREASED BY 200/10 = 20 BILLION

SO ANSWER IS B

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