Scenario 10.1 Imagine an Economy That Does Not Have International Trade and Trade

question 39

Multiple Choice

Scenario 10.1
Imagine an economy that does not have international trade and is initially in equilibrium. Later the government increases the level of spending by $350 million because it received a gift from abroad. In this economy, only 65 cents of every dollar is spent, and the rest is saved.
-Refer to Scenario 10.1. The new equilibrium level of GDP for the economy will be higher by approximately:

• A) $1 billion.
• B) $350 million.
• C) $65 million.
• D) $227.5 million.

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Definitions:

Corporate Tax Rate

The tax imposed on the net income of a corporation, varying by country and sometimes by industry or revenue size.

Discount Rate

The interest rate used in discounted cash flow analysis to determine the present value of future cash flows.

Commercial Banks

Financial institutions that offer a wide range of banking services to businesses and consumers, including deposit accounts and loans.

Short-Term Loans

Loans that are scheduled to be repaid in less than a year, used to meet immediate financial needs or cash flow shortages.