Q1. Illustrate the meaning of Balanced Budget Multiplier? Illustrate that the value of BBM is one if investment is autonomously given.
Q2. Describe why a raise in autonomous component of aggregate planned demand leads to a bigger increase in the equilibrium income.
Q3. Describe why a raise in government spending has a bigger multiplier effect on equilibrium output as compared to the equivalent reduction in taxes.
Q4. Trace out the effect of a raise in autonomous expenses on equilibrium output in simple Keynesian model. Illustrate what happens to the equilibrium income if MPC increases or drops?
Q5. Assume that the economy is presently in a recession. If policy makers take no action then describe how will the economy recover over time? Describe by using AD-AS model.
Q6. Describe whether the given statements are true or false:
a) The long run aggregate supply curve is vertical as economic forces don’t influence long run aggregate supply.
b) The aggregate demand curve slopes downward as it is the horizontal sum of demand curves for individual goods.
c) Whenever the economy enters the recession its long run aggregate supply curve shifts to left.