Explain the effects of the following actions on equilibrium ...

[bobbysung]

Explain the effects of the following actions on equilibrium income. 1 . Government purchases rise by 20 billion. 2 . Taxes fall by 20 billion. Assume that the marginal propensity to consume is 0.8.

Question 2

According to Gresham's Law:
 a. money with relatively high intrinsic value will be used for transactions.
  b. money with relatively low intrinsic value will be used for transactions.
  c. money with relatively high intrinsic value will cause inflation.
  d. money with relatively low intrinsic value will cause inflation.
  e. inflation increases the intrinsic value of money.

[eliasc0401]

Answer to Question 1

1 . 100 billion calculated as: 20 billion /(1 - 0.
2 . 80 billion calculated as: (-0.8  -20 billion)/(1 - 0.

Answer to Question 2

b