Macro Problem Set Q&a's

• Question 1

10 out of 10 points

(Chapters 10 and 11) In the Keynesian Cross model, if the economy is out of equilibrium such that GDP is above the equilibrium level of GDP, then actual GDP (Y) will be above planned expenditure (E), actual investment will be above planned investment due to unplanned inventory investment, and firms will respond to the inventory build-up by reducing their production, thus pushing the economy back to the equilibrium level of GDP.

Selected Answer: True

Answers: True

False

• Question 2

10 out of 10 points

In the market for real money balances, if the money supply increases, then real money balances (M/P) shifts left, raising the real interest rate.

Selected Answer: False

Answers: True

False

• Question 3

10 out of 10 points

If the Marginal Propensity to Consume is .72, what is the value of the Government Spending multiplier (rounded to the fourth decimal place)?

Selected Answer: 3.5714

Answers: 2.5714

None of these.

-2.5714

0.2800