Suppose the Government Finds It Can Increase Equilibrium Real GDP

question 39

Multiple Choice

Suppose the government finds it can increase equilibrium real GDP by $45 billion by increasing government purchases by $18 billion.On the basis of this information we can say that the:

• A)MPS in this economy is .4.
• B)MPC in this economy is .4.
• C)MPC in this economy is .3
• D)multiplier is 3.

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Definitions:

Moral Hazard

Moral Hazard refers to situations where one party is more likely to take risks because the negative consequences of their actions are borne by another party.

Adverse Selection

A situation where asymmetric information leads to the selection of undesirable participants in a contract or agreement, often seen in insurance and financial markets.

Bank Deposits

Funds that customers place into banking institutions for safekeeping and to earn interest.

Asymmetric Information

A situation in markets where one party in a transaction has more or superior information compared to another.