For this question, assume expectations of P and A are correct. ...

[Hungry!]

For this question, assume expectations of P and A are correct. Now suppose that there is a 3 reduction in A. Given this information, which of the following will occur?
 
  A) The PS relation will shift up by 2.
  B) The WS relation will shift down by less than 2.
  C) The WS relation will shift down by 2.
  D) There will be no change in the real wage.

Question 2

Suppose the United States economy is represented by the following equations: Z = C + I + G C = 500 + .5YD T = 600 I = 300 YD = Y - T G = 2000 a. Given the above variables, calculate the equilibrium level of output. b. Now, assume that government spending decreases from 2000 to 1900. What is the new equilibrium level of output? How much does income change as a result of this event? What is the multiplier for this economy?
 
  What will be an ideal response?

[soda0602]

Answer to Question 1

C

Answer to Question 2

a. Y = 5000
b. Y = 4800, multiplier = 2.

[Hungry!]

Thanks for the timely response, appreciate it

[marict]

Excellent