Exam_two_reviewb

# Exam_two_reviewb - 1 How does the multiplier for a change...

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1. How does the multiplier for a change in taxes compare to the multiplier for a change in spending? (p. 320) The tax multiplier is always one less than the expenditure multiplier 2. The federal government buys \$10 million of aircraft engines from Generous Motors. If the price is fixed and MPC is .80, what will be the impact on the GDP? (p. 286) MPC=0.8 means the multiplier is 5 (1/1-MPC), thus the change in GDP = \$10 * 5 = \$50 million 3. If a U.S. citizen buys a book printed in Canada, how does that transaction affect the measurement of aggregate demand in the U.S.? (p. 178) It is an import, and enters AD with a minus sign. 4. A firm buys sheet metal to produce dustpans. It also builds a new factory, and installs machinery to produce dustpans. Which of these expenditures is counted in GDP? (p. 175) The factory and machinery are counted. The sheet metal is an intermediate good and not included in GDP 5. What causes the short run aggregate supply curve to shift to the left? (p. 258) Temporary increases in input prices such as wage rate increases. 6. If C = 100 + .75(DI), I = 500, G=0, net exports = -200, and DI=GDP what is the equilibrium level of real GDP? (p. 284) GDP = C+I+G+X GDP = 100+.75(DI) + 500 –200 GDP = 400 + .75 (GDP) GDP - .75 GDP = 400 .25 GDP = 400 GDP = 1600 7. The vertical distance between the aggregate consumption function and the 45-degree reference line shows (p. 279) The volume of saving at each level of disposable income 8. If national income in other countries is rising more rapidly than national income in the U.S., what will be the effect on net exports for the U.S.? (p. 283) Net exports will rise as U.S. exports increase. 9. Assume that the MPC is .9, and investment falls by \$50 million. What is the change in real GDP? (p. 287) MPC=0.9 means the multiplier is 10 (1/1-MPC), thus the change in GDP = -\$50 * 10 = -\$500 million 10. The long run aggregate supply curve will shift to the right when

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## This note was uploaded on 04/14/2008 for the course ECON 004 taught by Professor Graf,pauledwin during the Spring '07 term at Penn State.

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Exam_two_reviewb - 1 How does the multiplier for a change...

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