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Questions › JNU › JNU SSS 2010 › Q58
1 mark, −0.5Macroeconomics › Keynesian cross and the multiplier › Government spending and tax multipliersModerateabout 2 min

JNU SSS 2010 Question 58: Keynesian cross and the multiplier

Suppose, in equilibrium, aggregate income (in units of money per year) in an economy Y=C+IY = C + IY=C+I, where investment expenditure (in units of money per year) I=1000I = 1000I=1000 and aggregate consumption expenditure (in units of money per year) CCC satisfies the following conditions : (i) CCC is a function of current disposable income in the economy (Yd)(Y_d)(Yd​) (ii) If Yd=0Y_d = 0Yd​=0, then C=500C = 500C=500 (iii) Marginal propensity to save out of YdY_dYd​ is constant in the economy and equal to 30% Suppose the government collects direct tax revenues equal to 15% of YYY and makes direct transfer payments equal to 750 units of money per year.

What is the value of the investment multiplier in the economy?

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Suppose, in equilibrium, aggregate income (in units of money per year) in an economy Y = C + I, where investment expenditure (in units of money per year) I = 1000 and aggregate consumption expenditure (in units of money per year) C satisfies the following conditions: (i) C is a function of current disposable income in the economy (Y_d) (ii) If Y_d = 0, then C = 500 (iii) Marginal propensity to save out of Y_d is constant in the economy and equal to 30% Suppose the government collects direct tax revenues equal to 15% of Y and makes direct transfer payments equal to 750 units of money per year. What is the value of the investment multiplier in the economy? (A) Between 1· 9 and 2· 1 (B) Between 2· 1 and 2· 3 (C) Between 2· 3 and 2· 5 (D) More than 2· 5

Keynesian cross and the multiplier has come up 167 times in 7 exams since 2006.

What this question tests

This question is on Government spending and tax multipliers, part of Keynesian cross and the multiplier in Macroeconomics.

The effect on income of changes in government spending, lump-sum taxes, transfers and income taxes.

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