Assume that the marginal propensity to save is 0.1 in an economy. To reduce the level of real GDP by $50 billion in that economy to achieve a full employment level of output, it will be necessary to

Assume that the marginal propensity to save is 0.1 in an economy. To reduce the level of real GDP by $50 billion in that economy to achieve a full employment level of output, it will be necessary to

A) decrease the aggregate expenditures schedule by $50 billion
B) decrease the aggregate expenditures schedule by $5 billion
C) increase the aggregate expenditures schedule by $50 billion
D) increase the aggregate expenditures schedule by $5 billion

Answer: B

A major limitation of the aggregate expenditures model is that it

A major limitation of the aggregate expenditures model is that it

A) gives more weight to cost-push than demand-pull inflation
B) makes a false distinction between planned and unplanned investment
C) assumes that prices are stuck or inflexible even as the economy moves near potential GDP
D) explains recessionary expenditure gaps but not inflationary expenditure gaps

Answer: C

If the MPC in an economy is 0.75, government could eliminate a recessionary expenditure gap of $50 billion by decreasing taxes by

If the MPC in an economy is 0.75, government could eliminate a recessionary expenditure gap of $50 billion by decreasing taxes by

A) $33.3 billion
B) $50 billion
C) $66.7 billion
D) $80 billion

Answer: C

The amount by which an economy's aggregate expenditures must shift upward to achieve full-employment GDP is

The amount by which an economy's aggregate expenditures must shift upward to achieve full-employment GDP is

A) an injection
B) a lump-sum tax
C) a recessionary expenditure gap
D) an unplanned change in inventories

Answer: C