Question

Assume that the full-employment level of output is $1,000 and the price level associated with full-employment output is 100. Also assume that the economy's current level of output is $1,100 and at the price level of 100 current aggregate demand is $1,200. If the government moves the economy back to the full-employment level of output by increasing taxes by $50, then the expenditures multiplier equals:

A. 2.B. 5.C. 4.D. 10.

Answer 1

Answer:

Option C is correct one.

4 is the expenditures multiplier

Explanation:

Since quite a while ago run value level is 100 and at that value the total interest is 1200 while potential yield is 1000. The necessary move in the total interest is 200 with the goal that the potential yield is reached. Government is diminishing it's spending by 50 which implies that the multiplier is 200/50 or 4.