Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781305971509
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 21, Problem 3QR
To determine
Multiplier and crowding out effect on aggregate demand.
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What happens to the Aggregate Demand (AD) when there is an increase in Government purchases.
How does increased government spending affect the aggregate demand curve?
If the government increases expenditures on goods and services and increases taxation by the same amount, which of the following will occur?
A. Aggregate demand will be unchanged.
B. Aggregate demand will increase.
C. Interest rates will decrease.
D. The money supply will decrease.
Chapter 21 Solutions
Principles of Macroeconomics (MindTap Course List)
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- how a decrease in government spending on infrastructure affect the aggregate demand curve?arrow_forwardBased on the picture, explain what happens to the aggregate demand. Describe your answer.arrow_forwardThe economy is in a recession The government enacts a policy to increase the real GDP by $10 bilion. The MPS is 0.2. Assuming that the aggregate supply curve is horizontal across the range of GDP being considered, by how much should the government change spending or taxes in order to achieve its objective? Show your calculations.arrow_forward
- Examine the following policies and determine which would decrease the level of aggregate demand. Group of answer choices A. Decreasing in government spending and decreasing taxes B. Increasing investment and increasing government spending C. Decreasing in government spending and increasing in taxes D. Increasing consumption and decreasing taxesarrow_forwardFind the aggregate supply when the aggregate demand is given as $888 billion.arrow_forwardDraw a graph, using the Aggregate Demand – Aggregate Supply curves, the result of a tax increase and cuts in federal expenditures during a period of inflation. Label all axes and curves and show which curve shifts and indicate the new equilibrium. As well as explain your graph in words.arrow_forward
- A visual/graphic representation of how a decrease in consumer spending shifts the aggregate demand curve.arrow_forwardSuppose that the U.S. government increases its expenditure on highways and bridges by $100 billion. Explain the effect that this expenditure would have on aggregate demand and real GDP.arrow_forwardThe government spends $3 billion to buy police cars.Explain why aggregate demand might increase bymore or less than $3 billion.arrow_forward
- Which of the following is not an example of government spending hike that will increase aggregate demand? Answers: A. Unemployment compensation. B. Government purchase of new military jet fighters. C. The construction of a new highway. D. Government purchase of new health care plan for retirees.arrow_forwardThe economy goes into recession. Which of the following lists contains things policymakers could do to try to end the recession? a. Increase the money supply, increase taxes, decrease government spending b. Decrease the money supply, increase taxes, decrease government spending c. Increase the money supply, increase taxes, increase government spending d. Increase the money supply, decrease taxes, increase government spendingarrow_forwardOne way that the government can increase aggregate demand is by: A. reducing income taxes. B. increasing the interest rates. C. reducing government spending. D. increasing business taxes.arrow_forward
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