Explain how you get the answer for each question 53. You are hired by the Counci

Question

Explain how you get the answer for each question

53. You are hired by the Council of Economic Advisors (CEA) as an economic consultant. The Chairperson of the CEA tells you that she believes the current unemployment rate is too high. The unemployment rate can be reduced if aggregate output increases. She wants to know what policy to pursue to increase aggregate output by $300 billion. The best estimate she has for the MPC is 0.8. Which of the following policies should you recommend? A) Increase government purchases by $60 billion. B) Increase government purchases by $150 billion. C) Cut taxes by $60 billion. D) Cut taxes by $60blion and to increase government purchases by $60 billion. 54. You are hired by the Council of Economic Advisors (CEA) as an economic consultant. The chairperson of the CEA tells you that she believes the current unemployment rate is too high The unemployment rate can be reduced if aggregate output increases. She wants to know what policy to pursue to increase aggregate output by $300 billion. The best estimate she has for the MPC is 0.8. Which of the following policies should you recommend? A) Increase government purchases by $75 billion. B) Reduce taxes by $75 billion. C) Reduce taxes by $75 billion and to increase government purchases by $75 billion. D) Reduce the budget deficit by $300 billion. 55. Suppose that in the beginning of 2016 the federal debt was $11 trillion and at the end of 2016, the federal debt was $11 trillion. During 2016, A) the budget deficit was zero. B) the government balanced its budget. C) the budget surplus was zero D) all of the above 58.Money is A) the same as income B) anything that is generally accepted as a medium of exchange C) the value of all coins and currency in circulation at any time D) backed by gold in Fort Knox. 66. A bond with a face value of $1,000 A) will always sell for more than the face value. B) will always sell for less than the face value C) will always sell for exactly the face value D) will sell for the market determined price

Explanation / Answer

Expenditure multiplier = 1 / (1 - MPC) = 5

Tax multiplier = - MPC / (1 - MPC) = -4

53)

Option A is correct

Increase in government purchases = 300/5 = $ 60 bn

54)

Option B is correct

Reduction in taxes = 300/4 = $ 75 bn

55)

Option D is correct

58)

Option B is correct (by definition)

66)

Option D is correct

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