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Assume that economists observe that in a closed economy an increase in government spending of $10 billion raises the total demand for goods and services by $30 billion.
1. If these economists ignore the possibility of crowding out, what would they estimate the marginal propensity to consume (MPC) to be?
2. Now suppose that the economists allow for crowding out. Would their new estimate of the MPC be larger or smaller than their initial one?
Suppose that the government of a closed economy reduces taxes by $20 billion, that there is no crowding out, and that the marginal propensity to consume is 3/4.
1. What is the initial effect of the tax reduction on aggregate demand?
2. What additional effects follow this initial effect? What is the total effect of the tax cut on aggregate demand?
3. How does the total effect of this $20 billion tax cut compare with the total effect of a $20 billion increase in government purchases? Why?
Determine your optimal pricing strategy if you and your rival believe that the new Jeep is a "special edition" that will be sold only for one year. Would your answer differ if you and your rival were required to resubmit price quotes year after ye..
The Business Cycle is the short-term fluctuations in the economy relative to the long-term trend in output; the recurring and fluctuating levels of the GDP growth rate over time.
Firm Z, operating in a perfectly competitive market, can sell as much or as little as it wants of a good at a price of $16 per unit. Its cost function is C=50+4Q+2Q^2. The associated marginal cost is MC=4+4Q, and the point of minimum average cost ..
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How foreign direct investment influences the wages
The demand curve for the product X is given by Qdx = 460 - 4Px. How much consumer surplus do consumers receive when Px = $35?
Find Total Revenue or profit
Assume that the demand and supply functions for good X are as follows: What is the equilibrium price and equilibrium quantity?
What price would Soft Rock have to charge to sell 2,000 T shirts? Compute the own price elasticity of demand when the price goes from $5 to $4.
Name any good or service which has a noticeable recent price change. Using concepts of supply and/or demand, what are some possible explanations for this change in price?
A grocery store notices that the cross-price elasticity between ice cream and chocolate syrup is -.3. The store is advertising a sale with ice cream prices reduced by 20%.
Explain what happens to price and quantity of milk when the following events take place: For each and every event, specify how it effects either demand, quantity demanded, supply, or quantity demanded. It is also important to demonstrate how the ch..
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