Imagine you win $25 million playing the lottery. You, in all your glory, decide that you will donate the money to revitalizing the US economy which is—at the time of your win—in a recession. You can choose to give your money to one of two groups. The first group—Group Albatross—has a marginal propensity to consume of 0.8. The other group—Group Bonobo—has a marginal propensity to consume of 0.3. If your goal is to jumpstart the economy, which group are you going to donate your money to? Why?

2) Lucinda received a loan of $100 for a period of one year at an interest rate of 10% from her rich
friend, Kathy. Over the period of a year, the general price level rose by 8%. Who is happy on account
of the price level increase, Kathy or Lucinda? Why?

3) What is the central argument of the AD-AS model? What assumptions is that argument based on?

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Answers to your economic questions 1 Donating to Jumpstart the Economy If your goal is to maximize the impact on the economy during a recession you sh... View the full answer