An increase in government purchases will increase aggregate demand because
A) the decline in the interest rate will increase demand.
B) the decline in the price level will increase demand.
C) consumption expenditures are a component of aggregate demand.
D) government expenditures are a component of aggregate demand.
D
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If the marginal propensity to consume (MPC) is 0.75 and government purchases increase by $200 billion, then
A) equilibrium real Gross Domestic Product (GDP) will increase by $50 billion. B) the effect on equilibrium real Gross Domestic Product (GDP) cannot be determined from the given information. C) equilibrium real Gross Domestic Product (GDP) will increase by $800 billion. D) equilibrium real Gross Domestic Product (GDP) will increase by $200 billion.
Suppose that real GDP starts at 200 and grows at a rate of 9 percent per year for two years. In the third year real GDP would be
A) 183.49. B) 236. C) 237.62. D) 239.24.