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Questions › JNU › JNU SSS 2014 › Q39
2 marks, −0.5Macroeconomics › Keynesian cross and the multiplier › Keynesian cross equilibriumModerateabout 2 min

JNU SSS 2014 Question 39: Keynesian cross and the multiplier

Suppose in economies AAA and BBB the aggregate value of output is Y=C+GY = C + GY=C+G, the sum of aggregate consumption and lump-sum government expenditures. The government imposes only lump-sum direct taxes and suppose TTT denotes the aggregate value of such taxes collected by the government. C=a+bYdC = a + bY_dC=a+bYd​, where aaa is the value of autonomous consumption expenditures, bbb is the constant marginal propensity to consume out of income and YdY_dYd​ is the aggregate value of disposable incomes in the economy. The value of bbb is higher in BBB than in AAA.

Suppose T=0T = 0T=0 in economies AAA and BBB and the value of aaa is also the same in both economies. Suppose the value of GGG is higher in economy BBB than in economy AAA. In which economy will aggregate private savings be higher?

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Suppose in economies A and B the aggregate value of output is Y = C + G, the sum of aggregate consumption and lump-sum government expenditures. The government imposes only lump-sum direct taxes and suppose T denotes the aggregate value of such taxes collected by the government. C = a + bY_d, where a is the value of autonomous consumption expenditures, b is the constant marginal propensity to consume out of income and Y_d is the aggregate value of disposable incomes in the economy. The value of b is higher in B than in A. Suppose T = 0 in economies A and B and the value of a is also the same in both economies. Suppose the value of G is higher in economy B than in economy A. In which economy will aggregate private savings be higher? (A) A (B) B (C) Will be the same in both economies (D) More information is needed to answer the question

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

What this question tests

This question is on Keynesian cross equilibrium, part of Keynesian cross and the multiplier in Macroeconomics.

How income is determined when output adjusts to planned spending, and what happens to unplanned inventories.

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Question from the JNU SSS 2014 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.