EC 111 - CH 11 || very Flawless.
The AD shortfall. correct answers The amount of additional aggregate demand needed to achieve
full employment after allowing for price level changes is
Horizontal distance between the aggregate demand curve necessary for full employment and the
aggregate demand curve that intersects AS at the equilibrium price. correct answers In a diagram
of aggregate demand and supply curves, the AD shortfall is measured as the
$3 million - (AD shortfall/multiplier) correct answers If the multiplier equals 2 and the AD
shortfall is $6 million, the desired fiscal stimulus is
$1,000 billion - 1/(1-0.8) -> (5)(200) correct answers Assume the MPC is 0.80. The change in
total spending for the economy due to a $200 billion government spending increase is
$40 billion - AD shortfall/multiplier -> fiscal stimulus/MPC correct answers To eliminate an AD
shortfall of $120 billion when the economy has an MPC of 0.75, the government should decrease
taxes by
The MPC is 0.60. correct answers If the desired fiscal stimulus is $20 billion and the desired AD
increase is $50 billion, we can conclude that
A $125 billion increase in government expenditures. - (AD shortfall/multiplier) correct answers
Given a $500 billion AD shortfall and an MPC of 0.75, the desired fiscal stimulus would be
Aggregate demand will decrease. correct answers Jack has an MPC of 0.82 and Jill has an MPC
of 0.78. Ceteris paribus, if the government transfers income from people who behave like Jack to
people who behave like Jill,
Tax cut of $11.11 billion - The amount by which AD increases from fiscal stimulus is equal to
the multiplier times the new spending injection or fiscal stimulus. Therefore, if the new spending
injection of $10 billion causes a $100 billion increase in AD, the multiplier must be 10 ($100
billion/$10 billion). By rearranging the multiplier formula, which is equal to 1 divided by 1
minus the MPC, we can solve for the MPC (0.90). The formula for computing the desired tax cut
is the desired fiscal stimulus divided by the MPC ($10 billion/.90 = $11.1 billion). Therefore, the
government should cut taxes by $11.1 billion. A tax hike would decrease AD. correct answers
Which of the following is the best choice to eliminate a recessionary gap if the desired fiscal
stimulus is $10 billion and the aggregate demand shortfall is $100 billion, while the MPC is
0.90?
Contains less fiscal stimulus than an increase in government spending of the same size. correct
answers A tax cut
Decrease tax rates and leave government spending unchanged. correct answers Assume the
economy is operating below full employment. Which of the following policy actions will allow
aggregate spending to increase but will not increase the size of the government in the process?
The AD shortfall. correct answers The amount of additional aggregate demand needed to achieve
full employment after allowing for price level changes is
Horizontal distance between the aggregate demand curve necessary for full employment and the
aggregate demand curve that intersects AS at the equilibrium price. correct answers In a diagram
of aggregate demand and supply curves, the AD shortfall is measured as the
$3 million - (AD shortfall/multiplier) correct answers If the multiplier equals 2 and the AD
shortfall is $6 million, the desired fiscal stimulus is
$1,000 billion - 1/(1-0.8) -> (5)(200) correct answers Assume the MPC is 0.80. The change in
total spending for the economy due to a $200 billion government spending increase is
$40 billion - AD shortfall/multiplier -> fiscal stimulus/MPC correct answers To eliminate an AD
shortfall of $120 billion when the economy has an MPC of 0.75, the government should decrease
taxes by
The MPC is 0.60. correct answers If the desired fiscal stimulus is $20 billion and the desired AD
increase is $50 billion, we can conclude that
A $125 billion increase in government expenditures. - (AD shortfall/multiplier) correct answers
Given a $500 billion AD shortfall and an MPC of 0.75, the desired fiscal stimulus would be
Aggregate demand will decrease. correct answers Jack has an MPC of 0.82 and Jill has an MPC
of 0.78. Ceteris paribus, if the government transfers income from people who behave like Jack to
people who behave like Jill,
Tax cut of $11.11 billion - The amount by which AD increases from fiscal stimulus is equal to
the multiplier times the new spending injection or fiscal stimulus. Therefore, if the new spending
injection of $10 billion causes a $100 billion increase in AD, the multiplier must be 10 ($100
billion/$10 billion). By rearranging the multiplier formula, which is equal to 1 divided by 1
minus the MPC, we can solve for the MPC (0.90). The formula for computing the desired tax cut
is the desired fiscal stimulus divided by the MPC ($10 billion/.90 = $11.1 billion). Therefore, the
government should cut taxes by $11.1 billion. A tax hike would decrease AD. correct answers
Which of the following is the best choice to eliminate a recessionary gap if the desired fiscal
stimulus is $10 billion and the aggregate demand shortfall is $100 billion, while the MPC is
0.90?
Contains less fiscal stimulus than an increase in government spending of the same size. correct
answers A tax cut
Decrease tax rates and leave government spending unchanged. correct answers Assume the
economy is operating below full employment. Which of the following policy actions will allow
aggregate spending to increase but will not increase the size of the government in the process?
