Question 1

Explain the effect of an increase in government spending of $50 billion on the economy.Assume that investment, net exports, government expenditures, and taxes do not change with changes in real GDP and the MPC is .75.

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Question 2

Why does the inclusion of a lump-sum tax cause domestic consumption to fall initially by an amount less than the tax?

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Question 3

Compare and contrast the recessionary gap and the inflationary gap.

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Question 4

If there is a recessionary gap of $100 billion and the MPC is 0.8, by how much must taxes be reduced to eliminate the recessionary gap? Assume that prices are stuck and that investment, net exports, government expenditures, and taxes do not change with changes in real GDP.

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Question 5

At the current level of real GDP,
Sa = $180
Ig = $160
X = $300
M = $280
G = $250
T = $270
(a) What is the size of injections? Leakages?
(b) Is GDP at its equilibrium level? Explain.(c) What is the unplanned change in inventories? Explain.

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Sa...

Question 6

Assume the level of investment is $8 billion and independent of the level of total output.Complete the following table and answer the following questions about this private closed economy.  (a) What are the sizes of the MPC, MPS, and multiplier in this economy?
(b) If full employment in this economy is 140 million, will there be a recessionary or inflationary gap? Explain the consequences of this gap.(c) Using the multiplier concept, determine what change in investment is needed to eliminate the output gap.(d) If full employment in this economy is 110 million, will there be an inflationary or recessionary gap? Explain the consequences of this gap.(e) Using the multiplier concept, determine what change in investment is needed to eliminate the output gap from part (d).

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Question 7

Keynes developed his theory during the height of the Great Depression (a severe recessionary gap) in the 1930s.What two policy tools did he recommend to close this gap?

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Question 8

Explain the relationship between net exports and the following factors: prosperity abroad, tariffs on Canadian exports abroad, depreciation of the Canadian dollar on foreign exchange markets.

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Question 9

At the current level of real GDP,
Sa = $160
Ig = $180
X = $320
M = $280
G = $270
T = $240
(a) What is the size of injections? Leakages?
(b) Is GDP at its equilibrium level? Explain.(c) What is the unplanned change in inventories? Explain.

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Sa...

Question 10

Explain how the recession resulting from the financial crisis in the United States in late-2008 was transmitted to Canada.

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Question 11

Explain the effect of a cut in lump-sum taxes of $40 billion on the economy.Assume that investment, net exports, government expenditures, and taxes do not change with changes in real GDP and the MPC is .75.How does the impact of this change differ from that of a $40 billion increase in government spending?

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Question 12

When international trade is considered, explain how net exports could be either positive or negative additions to aggregate expenditures.In which case would the impact of net exports be expansionary? Explain.

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Question 13

Assume that investment, net exports, government expenditures, and taxes do not change with changes in real GDP and the MPC is .75.(a) Suppose government spending increases by $20 billion.What is the impact on real GDP?
(b) Suppose that instead lump-sum taxes increase by $20 billion.What is the impact on real GDP?
(c) How would the results in (a) and (b) be different if imports and taxes increase as real GDP increases?

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Question 14

Explain why are nations are tempted to use policies of imposing tariffs on imported goods, and devaluating their national currency? Further explain why implementing such policies are huge mistakes?

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Question 15

The data in the first two columns below are for a closed economy without government.Use this table to answer the following questions.  (a) What is the equilibrium GDP for the closed economy?
(b) What is the size of the multiplier in the closed economy?
(c) Including the international trade figures for exports and imports, calculate net exports and determine the equilibrium GDP for an open economy.(d) What will happen to equilibrium GDP if exports were $25 billion larger at each level of GDP?
(e) What is the size of the multiplier in the open economy?

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Question 16

Some critics of the Chinese government accuse it of "manipulating" its currency, the Chinese yuan.Explain the nature of and the effects of this "manipulation".

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Question 17

"If taxes and government spending are increased by the same amount, there will still be a positive effect on equilibrium GDP." Explain.

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Question 18

The data in the first two columns below are for a closed economy without government.Use this table to answer the following questions.  (a) What is the equilibrium GDP for the closed economy?
(b) What is the size of the multiplier in the closed economy?
(c) Including the international trade figures for exports and imports, calculate net exports and determine the equilibrium GDP for an open economy.(d) What will happen to equilibrium GDP if exports were $25 billion larger at each level of GDP?
(e) What is the size of the multiplier in the open economy?

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Question 19

Describe the impact of an increase in government spending assuming no change in taxes and less than full-employment output.

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Question 20

What is the difference between the multiplier in a closed private economy and the multiplier in a mixed open economy?

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Quiz 11: Part A: The Aggregate Expenditures Model