Use the Keynesian cross model to predict the impact of an increase in government purchases on equilibrium GDP. State the direction of the change and give a formula for the size of the impact. O An increase in taxes shifts the planned expenditure function downward. The change in

Use the Keynesian cross model to predict the impact of an increase in government purchases on equilibrium GDP. State the direction of the change and give a formula for the size of the impact. O An increase in taxes shifts the planned expenditure function downward. The change in

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

option C is incorrect
Use the Keynesian cross model to predict the impact of an increase in government
purchases on equilibrium GDP. State the direction of the change and give a formula for
the size of the impact.
O An increase in taxes shifts the planned expenditure function downward. The change in
income is given by
AY=
AY=.
O An increase in taxes shifts the planned expenditure function upward. The change in income is given
by
-MPC
1-MPC
ΔΥ=
-MPC
1-MPC
AY=
O An increase in taxes shifts the planned expenditure function inward. The change in income is given
by
XAT
1
1-MPC
XAT
1
1-MPC
O The direction of the shift is undetermined without knowing the slope of the PE function. The
change in income is given by
XAT
XAT

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