Question

18. If the federal government increases the dollar amount of Social Security benefit checks for the elderly, then a. the consumption schedule will shift upward in the 45-degree line diagram. b. the aggregate demand curve will shift to the right in the aggregate demand aggregate supply curves diagram. c. the effect on the equilibrium real GDP will be the same as a cut in taxes. d. All of the above are correct. 19. The paradox of thrift is the notion that the attempt of society to save: a. less, as reflected in a downward shift of the consumption schedule, may be frustrated by the decrease in equilibrium GDP which will follow. b. more, as reflected in the downward shift of the consumption schedule, may be frustrated by the decrease in equilibrium GDP which will follow. c. more, as reflected in an upward shift of the consumption schedule, may be frustrated by the increase in equilibrium GDP which will follow. d. more, as reflected in an upward shift of the consumption schedule, may be frustrated by the decrease in equilibrium GDP which will follow. 20. The paradox of thrift emerges a. Whenever the savings rate increases. b. whenever the savings rate decreases. c. when the savings rate increases and investment increases. d. When the savings rate increases and investment does not increase. 21. Other things being equal, a decrease in an economy's exports will: a. increase domestic aggregate expenditures and the equilibrium level of GDP. b. decrease domestic aggregate expenditures and the equilibrium level of GDP. c. have no effect on domestic GDP because imports will offset the change in exports. d. decrease the marginal propensity to import.

Answer 1

18. A result of an increase in social security by the government is similar to the effect of tax cut, it increases disposable increase. Thereby increasing aggregate demand and consumption levels. Thus, D. All the above are correct, is the right option.

19. The paradox of thrift (Keynes) explained that at the time of recession, people try to save more that worsens the GDP growth further by decreasing aggregate demand. Thus, option B is correct.

20. The paradox of thrift will come into play when although the saving rate increases, investment remains the same. Thus, option D is correct.

21. A decrease in exports of the economy adversely affects the GDP by decreasing aggregate expenditure. Thus, option B is correct.