21. Suppose the closed economy is in long-run equilibrium. Pessimism on the part of investors then shifts the aggregate-demand curve $50 billion to the left. The government wants to increase spending in order to avoid a recession. If the crowding-out effect is always half as strong as the multiplier effect, and if the MPC equals 0.8, by how much do government purchases have to rise? a. $10 billion b. $20 billion c. $50 billion d. $100 billion 25. In recent years, inflation expectations have fallen. How did this shift the short-run Phillips curve, and what are the implications for unemployment? a. This shifted the short-run Phillips curve left, meaning that at any given inflation rate, unemployment will be lower in the short run than before. b. This shifted the short-run Phillips curve right, meaning that at any given inflation rate, unemployment will be lower in the short run than before. c. This shifted the short-run Phillips curve right, meaning that at any given inflation rate, unemployment will be higher in the short run than before. d. This shifted the short-run Phillips curve left, meaning that at any given inflation rate. unemployment will be higher in the short run than before.

21. Suppose the closed economy is in long-run equilibrium. Pessimism on the part of investors then shifts the aggregate-demand curve $50 billion to the left. The government wants to increase spending in order to avoid a recession. If the crowding-out effect is always half as strong as the multiplier effect, and if the MPC equals 0.8, by how much do government purchases have to rise? a. $10 billion b. $20 billion c. $50 billion d. $100 billion 25. In recent years, inflation expectations have fallen. How did this shift the short-run Phillips curve, and what are the implications for unemployment? a. This shifted the short-run Phillips curve left, meaning that at any given inflation rate, unemployment will be lower in the short run than before. b. This shifted the short-run Phillips curve right, meaning that at any given inflation rate, unemployment will be lower in the short run than before. c. This shifted the short-run Phillips curve right, meaning that at any given inflation rate, unemployment will be higher in the short run than before. d. This shifted the short-run Phillips curve left, meaning that at any given inflation rate. unemployment will be higher in the short run than before.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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