Question

Note: There is only one correct option.

1. To get the equilibrium level of income in the simple Keynesian model [1] we multiply the autonomous aggregate spending by the multiplier 12 we add all the autonomous aggregate spending component and subtract the multiplier [3] we divide the multiplier by aggregate demand [4] we multiply the interest rate by the multiplier 2. An increase in the tax rate in the Keynesian model will 1 shift the aggregate spending curve upwards in a parallel way [2] shift the consumption curve upwards in a parallel way 3 not affect the aggregate spending curve 4] swivel the aggregate demand curve downwards 3. Expansionary demand management policy measures tend to... [1] raise the real GDP and inflation. 2] increase price level and decrease real output. [3 increase both inflation and the level of unemployment. 4] Increase the production cost, which will decrease total production

Answer 1

1) 1. When the components C, I, G, and NX are added we get an equation where one part is autonomous and one part depends on income. This is then equated against income which gives the multiplier. Then multiplier is multiplied with autonomous aggregate part

2) 4. As tax is increased, AD should be reduced

3) 1. These policies will shift AD to the right and raise employment, real GDP and inflation

4) 4. This is the cause of supply side inflation

5) When AS shifts left, prices are increased and GDP is reduced. To combat, AD is shifted down to reduce prices but in the process GDP also reduces. (No option is correct)

6) 4.

7) 2.

8) 1.