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2.2) sh DI ang 100 C osh Question 7 (2.5 points) What's happening in the diagram?...

Question

2.2) sh DI ang 100 C osh Question 7 (2.5 points) What's happening in the diagram?...

2.2) sh DI ang 100 C oshQuestion 7 (2.5 points) Whats happening in the diagram? a) Theres a recessionary gap of $1,200. b) Taxes should fall by $20Question 11 (2.5 points) If the MPC is an economy equals 0.75 and investment rises by $200, what will be the ultimate effect

2.2) sh DI ang 100 C osh
Question 7 (2.5 points) What's happening in the diagram? a) There's a recessionary gap of $1,200. b) Taxes should fall by $200. c) Autonomous consumption must rise by $140. d) The MPC equals 0.2. e) The spending multiplier equals 10. Question 8 (2.5 points) According to the simple Keynesian model, the fundamental cause of all recessionary gaps is: a declining price level. a booming stock market. the inflexibility (or stickiness) of wages that need to fall in the economy. insufficient aggregate demand (i.e., insufficient spending). mismanagement of the economy.
Question 11 (2.5 points) If the MPC is an economy equals 0.75 and investment rises by $200, what will be the ultimate effect on the economy's real GDP? Assume no leakages. $150 $200 $267 $800 $1500

Answers

(7) Equilibrium GDP is 500 at the intersection ponit of C and 45 degree curve.

Full employment GDP is 1200

There is recessionary gap of 700 because the equilibrium GDP is lower than the full employment GDP by 700.

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When Y = 0, then C = 100

When Y = 500, then C = 500

MPC = (Change in C / Change in Y)

=> MPC = (500-100) / (500-0)

=> MPC = (400 / 500) = 0.8

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Multilier = 1 / (1-MPC)

=> Multiplier = 1 / (1- 0.8) = 5

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There is need to increase GDP by 700 to close the recessionary gap.

Multiplier = (Change in GDP / Change in automous consumption)

=> 5 = (700 / change in autonomous consumption)

=> Change in autonomous consumption = (700 / 5) = 140

Hence, autonomous consumption must increase by 140.

Answer: Option (c)

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(8) According to the simple Keynesian model, the fundamental cause for all recessionary gap is insufficient aggregate demand.

Answer: Option (D)

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(11) Multiplier = 1 / (1-MPC)

=> Multiplier = 1 / (1-0.75)

=> Multiplier = 1 / 0.25

=> Multiplier = 4

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Multiplier = (change in real GDP / change in investment)

=> 4 = (change in real GDP / $200)

=> change in real GDP = 4 *$200

=> change in real GDP = $800

The real GDP will rise by $800

Answer: Option (D)


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