Question

decrease in personal taxes from $100 billion to 580 billion will increase real GDP 11. If the MPC -0.75, a decrease in person by A) $20 billion. B) $40 billion. C) $60 billion. D) $80 billion. Table 10.1 Consumption C - $1.0+ 0.80YD Investment $1.5 Government purchases $2.2 Net exports Taxes Government transfer payments $0 (all values are in billions of dollars) 2, 12. Refer to Table 10.1. Equilibrium real GDP for this economy is equal to A) $5.75 billion. B) $12 billion. C) $23 billion. D) $46 billion. 13. Refer to Table 10.7. The value of the tax multiplier in this economy is A) 0. B)-2. C) -4. D)-5. 14. Other things equal, if planned investment spending is greater than actual investment spending, then aggregate expenditure will be real GDP and inventories will A) greater than; rise B) greater than; fall C) less than; rise D) less than; fall and where the goods market is in 15. The IS curve shows the combinations of equilibrium. A) aggregate expenditure; real GDP B) the real interest rate; real GDP C) potential GDP; aggregate expenditure D) the nominal interest rate; the quantity of money

Answer 1

11.

Tax multiplier=-MPC/MPS

MPC=0.75

MPS=1-MPC

=1-0.75

=0.25

Tax multiplier=-0.75/0.25

=-3

Change in personal tax=-20 billion

An increase in the real GDP=tax multiplier* change in personal taxes

=-3*(-$20 billion)

=$60 billion

Hence option C is the correct answer.

12.

In equilibrium

Y=C+I+G+X-M

Y=1+0.80(Y-T)+1.5+2.2+(-0.1)

Y=4.6+0.8(Y-0)

Y=4.6+0.8Y

Y-0.8Y=4.6

0.2Y=4.6

Y=4.6/0.2

Y=$23 billion

Hence option C is the correct answer.

13.

Tax multiplier=-MPC/MPS

MPC=0.8

MPS=1-MPC

=1-0.8

=0.2

Tax multiplier=-0.8/0.2

=-4

Hence option c is the correct answer.

14.

If other things remaining same and planned investment spending is greater than actual investment spending, then aggregate expenditure will be greater than real GDP and inventories will fall.

Hence option B is the correct answer.