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marginal propensity

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Assume autonomous net taxes rise by $500; the marginal propensity to consume = 3/4. Net exports, planned investment, taxes, and government purchases are autonomous and remain fixed. As a result, equilibrium real GDP demanded will
a. rise by $500
b. fall by $500
c. rise by $1,500
d. fall by $1,500
e. rise by $2,000

Which of the following is not true about classical economists?
a. They criticized mercantilism as an economic system.
b. They advocated laissez-faire policies to promote economic growth.
c. They believed the economy would naturally tend toward full employment.
d. They believed prices and wages react slowly to market changes.
e. They discouraged government intervention in markets.

The Classical economists believed in the self-correcting nature of the economic system. They believed that the major adjustment
a. mechanisms was government assistance
b. mechanisms were inflexible wages and prices and flexible interest rates
c. mechanisms were flexible wages, prices and interest rates
d. mechanisms were sticky wages, prices and interest rates
e. mechanisms were inflexible interest rates and flexible wages and prices

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Solution Preview

Assume autonomous net taxes rise by $500; the marginal propensity to consume = 3/4. Net exports, planned investment, taxes,

and government purchases are autonomous and remain fixed. As a result, equilibrium real GDP demanded will
a. rise by $500
b. fall by $500
c. rise by $1,500
d. fall by $1,500
e. rise by $2,000

The marginal propensity to save is MPS = 1 - MPC = 1 - 3/4 = 1/4 = 0.25
the tax multiplier = - ...

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