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:

Demand-Side Market Failures

Underallocations of resources that occur when private demand curves understate consumers’ full willingness to pay for a good or service.

Supply Curve

Represents the relationship between the price of a good or service and the quantity of that good or service that a supplier is willing and able to supply to the market.

Willingness To Pay

The maximum amount a consumer is prepared to spend to acquire a good or service, reflecting its perceived value.

Full Cost

The total expense associated with producing a product or providing a service, including both direct and indirect costs.