JNU SSS 2013 Question 57: Keynesian cross and the multiplier
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 (Yd).
(ii) If Yd=0, then C=500.
(iii) Marginal propensity to save out of Yd 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.
If instead of 750 units of money the government makes annual transfer payments equal to 10% of Y, then the equilibrium value of Y will
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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. If instead of 750 units of money the government makes annual transfer payments equal to 10% of Y, then the equilibrium value of Y will (A) decrease by less than 1000 (B) decrease by more than 1000 (C) increase by less than 1000 (D) increase by more than 1000
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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