If Government Purchases Increase by $20 Billion and Aggregate Demand

question 27

Multiple Choice

If government purchases increase by $20 billion and aggregate demand shifts rightward by $30 billion as a result,we can conclude that:

• A)the spending multiplier is 2.00
• B)the MPC for this economy is 0.33
• C)unemployment is rising
• D)the MPW for this economy is 0.33
• E)the spending multiplier is 3.00

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Definitions:

Paasche Index

A price index that measures the cost of purchasing a given market basket of goods and services in a certain year, compared to the cost of purchasing the same goods and services in a base year, with the quantities used in weighting the prices coming from the year of interest rather than the base year.

Ideal Cost-Of-Living Index

A theoretical measure that tracks the changes in the amount required to maintain a constant standard of living over a period.

Ideal Cost-Of-Living Index

A theoretical measure representing the change in the amount of money needed to maintain a certain standard of living.

Utility

A measure of satisfaction or happiness that a consumer receives from consuming goods and services.