Consider a Simple Macro Model with Demand-Determined Output

question 105

Multiple Choice

Consider a simple macro model with demand-determined output.Which of the following parameters will produce the largest fluctuations in real GDP from autonomous expenditure shocks?

• A)MPC = 0.8,t = 0.2,m = 0.3
• B)MPC = 0.7,t = 0.3,m = 0.2
• C)MPC = 0.7,t = 0.1,m = 0.4
• D)MPC = 0.9,t = 0.2,m = 0.4
• E)MPC = 0.8,t = 0.1,m = 0.2

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Definitions:

Variable Costs

Expenses that vary directly with the level of production or volume of output.

Snow-clearing

The process of removing snow from surfaces, like roads and walkways, to make them accessible and safe.

Perfectly Competitive

A market structure characterized by many buyers and sellers, all of whom have complete information and the products offered are homogeneous.

Marginal Cost

is the extra cost incurred by producing one more unit of a product or service.