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Flashcards in Quizzes Deck (9)
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1
Q

What will cause price level to increase in the long run?

A

• decrease in the money supply

2
Q

Natural disaster in the midwest will do what to the AS curve?

A

• shift it

3
Q

Marginal propensity to consume can never be zero (true or false)?

A

• true

4
Q

The Vietnam War led to economic overheat so policymakers _____.

A

• enacted a temporary tax surcharge

5
Q

Taxes are reduced by x amount which leads to a y increase in income. Value of the tax multiplier is _____

A

• - x/y

6
Q

The size of the multiplier depends on _____

A

• marginal propensity to consume

7
Q

An economy’s marginal propensity to consume is 0.9 and the marginal propensity to import is 0.1. An increase in gov’t spending of $2000 will lead to an increase in income by _____.

A

• The problem is to find the intercept between the consumption function and the 45° line. This means finding the intercept between y = (.9 - .1)x + 2000 and y = x, and then finding the x intersection. So x = 2000/.2

8
Q

Disposable income…

A

• increases when income increase

9
Q

The larger the propensity to import, the larger the multiplier in an open economy. True or false?

A

• false