Initially, the economy is in long-run equilibrium. The aggregate demand curve then shifts $50 billion to the left. The government wants to change its spending to offset this decrease in demand. The MPC is 0.80 . Suppose the effect on aggregate demand from a change in taxes is 4/5 the size of the change from government expenditures. There is no crowding out and no accelerator effect. What should
the government do if it wants to offset the decrease in aggregate demand?
a. Raise both taxes and expenditures by $5.56 billion dollars.
b. Raise taxes by $40 billion dollars and increase expenditures by $50 billion dollars.
c. Reduce taxes by $10 billion dollars and increase expenditures by $10 billion dollars.
d. Reduce taxes by $5.56 billion dollars and increase expenditures by $5.56 billion dollars.
d
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The authors of the textbook would not want to say you were "littering" when you toss your peanut shells under your seat at a major league baseball game because
A) peanut shells are biodegradable. B) someone is going to clean up after you. C) the games are played outside. D) the stadium is public property and public property is no one's property. E) the people in charge of putting on the game don't mind at all.
Refer to Figure 6.1. At which point on the total product curve is the average product of labor the highest?
A) point A. B) point B. C) point C. D) point D. E) none of the above