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During one period in history, business investment spending dropped and our trade deficit got larger (imports were bigger than exports
During one period in history, business investment spending dropped and our trade deficit got larger (imports were bigger than exports.) A reason this did not lead to a drop in GDP could have been:
A) consumer spending increased
B) government deficits declined
C) imports dropped relative to exports
D) exports dropped relative to imports
E) our exchange rate improved
19. Assume the MPE is .75. If the government raises spending by $100 Billion the equilibrium level of GDP should (assuming Keynesian economics):
A) fall by $ 300 billion
B) rise by $ 300 billion
C) fall by $ 400 billion
D) rise by $ 400 billion
20. In a period of high unemployment the Fed. would probably:
A) raise the fed funds rate
B) raise the discount rate
C) raise the required reserve ratio
D) buy bonds through open market operations
E) increase government spending and cut taxes
Expert Solution
12 During one period in history, business investment spending dropped and our trade deficit got larger (imports were bigger than exports.) A reason this did not lead to a drop in GDP could have been:
A) consumer spending increased
(Which has make up the decline in business investment spending)
19. Assume the MPE is .75. If the government raises spending by $100 Billion the equilibrium level of GDP should (assuming Keynesian economics):
Value of the multiplier= 1 / (1 - MPE)
(Thus MPE = Marginal propensito of Expenditure or consumption)
Thus in our case it is= 1/(1-.75)= 4 times
Thus it will rise by 100*4= $400 billion
D) rise by $ 400 billion
20. In a period of high unemployment the Fed. would probably:
D) buy bonds through open market operations
This will lead to increase in liquidity and demand in economy. This will help in reducing unemployment.
Fed only deals with monetary policy where as the option E is part of Fiscal policy.
SOURCE:
1. MACRO ECONOMICS BY MISHRA & PURI
2. WWW.INDIAINFOLINE.COM
3. FEDERALA RESERVEBOARD (WEBSITE)
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