Suppose That We Are Comparing Results in the Following Two

question 7

Multiple Choice

Suppose that we are comparing results in the following two models
Model A: Y_it = 0.9Y_i,t-1 + 2X_1it
Model A: Y_it = 0.8Y_i,t-1 + 2X_1it
Which of the following is true?

• A) The long-term effect of a one unit change in X will be 10 times bigger in Model A than in Model
• B) The long-term effect of a one unit change in X will be 10 percent bigger in Model A than in Model
• C) The short-term effect of a one unit change in X will be bigger in Model A than in Model
• D) The short-term effect of a one unit change in X will be smaller in Model A than in Model

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Definitions:

Interest Rate

The fee, shown as a percent of the principal, that a lender imposes on a borrower for the utilization of assets.

Government Spending

Financial expenditures by the government, including investments, consumption, and transfer payments, aimed at influencing the economic activity.

Total Income

The aggregate earnings received by an individual or entity, including wages, salaries, profits, rent, and other income streams, over a specific time frame.

Multiplier

In economics, a factor by which an increase in spending leads to a greater increase in national income.