Question

the consumption function for an economy is C# 180 + 75 Yd (disposable Income) and spending increases by $800, then the resulting change in national income is a +$2,800 b. 5-3,200 OC $2,800 d. $+3,200 1 points Save Answer QUESTION 5 Assume the actual GOP IS $4800 and the potential GOP is $4400. The economy's MPC is.75. What should the government do to eliminate the gap? a. raise taxes by $100 b. cut taxes by $75 c. increase government spending by $100 d. decrease government spending by $100 QUESTION 6 1 points Save Answer Assume the GDP is $2500 and total Aggregate Expenditures is $2000 Unplanned inventory would be and incomes would tend to a positive rise b. positive; fall negative; rise d.negative:fall

Answer 1

4. D.
(MPC = 0.75

according to spending multiplier,

Change in income = Change in spending/(1-MPC) = 800/(1-.75) = 800/.25 = 3200)

5. D
(MPC = 0.75 and change in income required = 4400-4800 = -400

according to spending multiplier,

Change in spending = Change in income*(1-MPC) = (-400)*(1-.75) = (-400)*.25 = -100

So, government spending should be decreased by 100.)

6. B

(As Y > AE so unplanned inventory will be positive and income would fall.)