Need help with some questions please!

Question

1. assume macro equilibrium occurs along the short-run regions of the aggregate supply curve. When aggregate demand increases, unemployment:

a. Decreases and the price level decreases

b. Decreases and the price level increases

c. Increases and the price level decreases

d. Increases and the price level increases

1. If MPC is 0.75, then a $200 million increase in taxes will cumulatively:

a. Reduce spending by $150 million

b. Reduce spending by $600 million

c. Increase spending by $600 million

d. Increase spending by $150 million

1. a tax increase has a smaller impact on aggregate demand then does a decrease in government purchases of the sane magnitude because:

a. Congress is slow in passing tax increases

b. Consumers pay for part of the Tex increase by increasing their saving

c. Tax changes will change disposable income, which in turn, changes consumption spending by a lesser amount due to MPC

d. None of the above are true

thanks so much!

Answer 1

When aggregate demand increases the Price Level increases and unemployment decreases. (b)

If the MPC is .75 then the MPS is .25 the Government Spending Multiplier will be 1/.25 = 4

The Taxing Multiplier is always 1 less than the Government Spending Multiplier and the formula is MPC/MPS

.75/.25 = 3. The Taxing Multiplier is 3, so a 200m increase in Taxes (Contractionary Fiscal Policy) will cause the RGDP to decrease by 200m x 3 = 600m

The answer is (b) Reduce spending by 600m