Comparing the aggregate supply curve and the short-run Phillips ...

[javeds]

Comparing the aggregate supply curve and the short-run Phillips curve, we see that they
 
  A) both exist because real wage rate is fixed in the short run.
  B) both exist since money wages are flexible.
  C) each describe different parts of the economy.
  D) describe the same phenomena but contradict each other.
  E) both exist because money wage rate is fixed in the short run.

Question 2

Suppose the economy has no income taxes or imports. The MPC equals 0.8. What does the expenditure model predict will be the change in real GDP if investment increases by 200 billion?
 
  What will be an ideal response?

[Dinolord]

Answer to Question 1

E

Answer to Question 2

The expenditure multiplier equals , so for the case in the question, the expenditure multiplier equals = = 5.0. The change in real GDP equals the expenditure multiplier multiplied by the change in investment, or 5.0  200 billion = 1,000 billion.