Question Details

As a result of this policy the budget deficit will become 



Consider an economy in which the current level of income is $600b, "the" multiplier is 4, the marginal tax rate is 20%, the current budget deficit is $30b. 
1. To increase income to $650b we require an increase in government spending of 
	less than $10b b) between $10b and $15b 
	c) between $15b and $20b d) over $20b 

2. As a result of this policy the budget deficit will become 
a) less than or equal to $30b b) between $30b and $35b 19 
c) between $35b and $40b d) $40b or greater 
3. From the data in Table 1, when the level of income is 220, 
a) inventories will be rising b) inventories will be falling 
c) inventories will be steady d) insufficient data to determine inventory behavior 
4. From the data in Table 1 the equilibrium level of income 
a) is less than 220 b) is 220 c) is more than 220 d) could be any level 
5. Using the data in Table 1, by how much should the level of income have increased after two rounds of the multiplier process if the economy begins at its equilibrium position and increases government spending by 40? 
a) 40 b) 68 c) 70 d) 73

Table 1. For each level of output are shown the resulting levels of the elements of 
aggregate demand. 
Output Consumption Investment Government Spending Net Exports 
100 80 15 15 6 
140 110 20 15 4 
180 140 25 15 2 
220 170 30 15 0 
260 200 35 15 -2 
300 230 40 15 -4 




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