Question

QUESTION 17 Pasedonia is going through a recession. To fight the recession their house of Congress has passed a bill to increase infrastructure spending—but the legally required environmental impact report for each new project will take at least two years to complete before any building can begin. Identify the problem described in this scenario that limits the fiscal policy A administrative lag OB. Operational lag Crowding out OD Recognition lag QUESTION 18 If there was a change in investment spending of $10 and the marginal propensity to save was 0.25, then real GDP would increase by A $ 10 B. $20 C. 5 25 D.$ 40

Answer 1

1.

Option A is correct.

As the project is delayed due to environmental impact report which is required legally to begin project. This will lead to adminstrative lag as the report is required legally which is the adminstrative guideline.

It is not operational lag as this delay is not happening due to project operations.

2.

Option D is correct!!.

MPS = Change in Savings / Change in Income

As we know in equilibrium income is equal to savings, therefore change in savings = change in investment = $10.

0.25 = 10 / Change in Income

Therefore change in income = 40.

3.

Option B is correct!!

As we can see that budget surplus is converting from year 2001 to budget deficit in year 2002, therefore we can say that expenditure is increasing. Due to increase in expenditure it can be inferred that expansionary fiscal policy is implemented.

4.

Option D is correct!!

AD = Consumption + Investment + Government expenditure + Exports - Imports.

It can be seen that AD and imports are inversely correlated, therefore AD will increase if imports decrease.

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