Two Identical Countries, Country a and Country B, Can Each

question 75

Essay

Two identical countries, Country A and Country B, can each be described by a Keynesian-cross model. The MPC is 0.9 in each country. Country A decides to increase spending by $2 billion, while Country B decides to cut taxes by $2 billion. In which country will the new equilibrium level of income be greater?

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Definitions:

Aversion Therapy

A type of behavioral therapy that involves pairing unwanted behaviors with unpleasant stimuli to reduce the occurrence of those behaviors.

Problem Drinker

An individual who experiences social, emotional, or physical problems as a result of alcohol consumption.

Drug Therapy

The treatment of diseases and conditions with pharmaceutical drugs, as opposed to surgery or other interventions.

Cognitive Therapy

A form of psychotherapy that focuses on changing unhelpful or unhealthy thought patterns in order to improve emotional regulation and develop personal coping strategies.