var imagesXXXlarge = "krugmanap2e-ch21-fig-1,,,"; var imagesXlarge = ",,,"; var imagesLarge = ",,,,,"; var imagesSmall = "krugmanap2e-ch21-fig-5,,,,,"; var imagesMedium = ",,,,"; xBookUtils.showAnswers['krugmanapecon2e_mod21_cyu_1a'] = "A $500 million increase in government purchases of goods and services directly increases aggregate spending by $500 million, which then starts the spending multiplier in motion. It will increase real GDP by $500 million × 1/(1 − MPC ). A $500 million increase in government transfers increases aggregate spending only to the extent that it leads to an increase in consumer spending. Consumer spending rises by MPC × $1 for every $1 increase in disposable income, where MPC is less than 1. Thus, a $500 million increase in government transfers will cause a rise in real GDP only MPC times as much as a $500 million increase in government purchases of goods and services. It will increase real GDP by $500 million × MPC /(1 − MPC )."; xBookUtils.showAnswers['krugmanapecon2e_mod21_cyu_2a'] = "The tax multiplier is relatively small because the initial change in spending is relatively small. For each $1 increase in taxes, the initial decrease in spending is only the MPC , whereas a $1 decrease in government purchases decreases spending by a full $1."; xBookUtils.showAnswers['krugmanapecon2e_mod21_cyu_3a'] = "Boldovia will experience greater variation in its real GDP than Moldovia because Moldovia has automatic stabilizers while Boldovia does not. In Moldovia, the effects of slumps will be lessened by unemployment insurance benefits, which will support residents’ incomes, while the effects of booms will be diminished because tax revenues will go up. In contrast, incomes will not be supported in Boldovia during slumps because there is no unemployment insurance. In addition, because Boldovia has lump-sum taxes, its booms will not be diminished by increases in tax revenue. "; xBookUtils.showAnswers['krugmanapecon2e_mod21_fr_2_rubric'] = "
Rubric for FRQ 2 (3 points)
1 point: $50 million
(spending multiplier = 1/(1 − MPC ) =1/(1 − 0.75) = 1/0.25 = 4; change in G × 4 =$200 million; change in G = $50 million)1 point: 10
($20 × spending multiplier = $200 million;spending multiplier = 200/20 = 10)1 point: 0.1
(1/(1 − MPC ) = 1/MPS = 10; MPS = 0.1)"; xBookUtils.showAnswers['krugmanapecon2e_sect04_fr_1_rubric'] = "Rubric for FRQ (7 points)
1 point: A graph with “Aggregate price level” or “Price level” and “Real GDP” on the vertical and horizontal axes; a labeled, downward-sloping AD curve; and a labeled, upward-sloping SRAS curve
1 point: A vertical LRAS curve that passes through the intersection of the AD and SRAS curves
1 point: Showing P1 on the vertical axis and Y1 on the horizontal axis, both at the intersection of the AD and SRAS curves
1 point: Showing a labeled, downward-sloping AD curve to the right of the original AD curve
1 point: Showing P2 on the vertical axis and Y2 on the horizontal axis, both at the intersection of the new AD and original SRAS curves
1 point: Inflationary gap
1 point: Contractionary policy
"; $('#krugmanap2e-ch21-list-bullet').append('');