Author Question: After the financial crisis in the 1990s many economists criticized the IMF and the World Bank. Some ... (Read 20 times)

hubes95 · **on:** Jun 30, 2018

After the financial crisis in the 1990s many economists criticized the IMF and the World Bank. Some suggestions for reform are to

A) eliminate both the institutions.
B) increase private-sector lending by governments providing tax breaks to lenders.
C) create a board of directors made up of finance ministers for the IMF.
D) all of the above

Question 2

If the economy has an MPC of 0.8, by how much will a 50 billion increase in government purchases increase GDP? By how much will a 50 billion increase in taxes decrease GDP?

What will be an ideal response?

parshano · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

D

Answer to Question 2

With an MPC of 0.8, the multiplier is 1/(1 - 0.8 ) = 5, so an increase in spending will increase GDP by 250 billion. The tax multiplier would equal -4, so the increase in taxes would reduce GDP by 200 billion.