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guajiro [1.7K]
3 years ago
13

Suppose an economy experiences a lump-sum increase in government spending of $20 million. If the multiplier is 4.0, then accordi

ng to the macroeconomic model presented in the text what will be the change in the equilibrium level of output?
Business
1 answer:
Aleksandr-060686 [28]3 years ago
4 0

Answer:

equilibrium level of output should increase by $80 million

Explanation:

The concept of multiplier is used to explain how an increase or decrease in the money available in the economy changes economic output. In this case you have to multiply the increase in government spending by 4 = $20 million x 4 = $80 million.

Money doesn't stand still, imagine the government gives you $100, and unless you bury it in the ground, those $100 will multiply and in this case convert to $400. The idea is not that complicated, since once you receive the money, you will spend some part of it (or all) and you will save the remaining part. Let's say you buy groceries at the supermarket and spend $75, and save $25. The owner of the supermarket (the corporation or individual) will use $60 of your $75 to pay for dairy products that were purchased before. The rest will be kept in the bank. The seller of the dairy products will in turn use a part of the $60 received to pay for gas. And then it will be turn of the gas station, its employees, etc.  

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If we want to produce more computers, we must give up the production of some cameras, which is referred to as production efficiency.

Production efficiency is a word used in economics to describe the point at which an economy or other entity can no longer produce more of one good without reducing the level of production of a different one. When production is allegedly taking place along a production possibility frontier, something occurs (PPF). The terms "production efficiency" and "productive efficiency" are interchangeable. Similar to operational efficiency, productive efficiency refers to how effectively something is performing. The mapping of a production possibility frontier is central to the economic idea of production efficiency. When analyzing economic operational efficiency, economists and operational analysts often additionally take into account a few more financial variables, such as capacity utilization and cost-return efficiency.

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