In an article regarding Bangladesh's economy, the author suggests that the government ..."[g]ive do tax breaks on investment dollars. Give a tax break to R&D [research and development]. Give a tax b on donations to educational institutions. "
HYPERLINK "http://www.groundreport.com/" www.groundreport.com, March 24, 20
Suppose the multiplier in Bangladesh is 2. As a result of enacting the proposed policies, which of th following describe possible outcomes in the short run?
i. an $20 billion increase in investment will increase aggregate expenditure by $40 billion.
ii. the AE curve will shift upward.
iii. there will be an unplanned increase in inventories.

Question

Quizplus · Accepted Answer

Since the multiplier is 2, a $20 billion increase in investment would result in a $40 billion increase in aggregate expenditure (i). This would shift the AE curve upward (ii). There is no indication that there would be an unplanned increase in inventories (iii). Therefore, choices i and ii only are possible short-run outcomes.

In an Article Regarding Bangladesh's Economy, the Author Suggests That