5. State another way in this model equilbrium occurs if: a. ae are greater than

Question

5. State another way in this model equilbrium occurs if:

a. ae are greater than GDP

b. ae are less than GDP

c. there is no unplanned inventory depletion or accumulation

d. consumption = investment

6. in the ae-output modelm if an economy operates above equilbrium GDP, there will be:

a.unplaned inventory accumulation

b. unplanned inventory depletion

c. an increase in employment

13. Keynes criticism of the classical theory was that the Great Depression would not correct itself. The multiplier effect would restore an economy to full employment if:

b.governement taxes were increased

c. governement spending were increased

17. Marginal propensity to consume (MPC) is 0.75, the value of the spending multiplier is

a.0

b. 1

c.4

d. 10

18. in the ae-output model, assume that the MPC is .75. An increase in investment spedning of $6 billion would produce an ultimate increase in real GDP of:

a. 0.25 billion

b. 0.75 billion

c. 12 billion

d. 24 billion

Explanation / Answer

d. consumption = investment

6

b. unplanned inventory depletion

c. governement spending were increased

1/(1-0.75) = 4

c.4

Multiplier = 4 ; so 4*6 = $24 billion

d. 24 billion

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