Question

Consider the economies of Kimberlei and Clarkistan, which are identical except that the multiplier in Kimberlei is smaller than that in Clarkistan.

This means that Kimberlei's GDP is _______ Clarkistan's GDP to fluctuations in the components of total spending.

A) less sensitive than

B) equally sensitive as

C) more sensitive than

Features of the economy that reduce its sensitivity to shocks are called automatic stabilizers.

Suppose again that the economies of Kimberlei and Clarkistan are identical except that Kimberlei has instituted personal income tax, whereas Clarkistan hasn't.

Clarkistan's economy is (more, less) sensititve to fluctuations in GDP than Kimberlei's economy. This is because the personal income tax has ( increaes or reduced) kimerleis multiplier.

Answer 1

This means that Kimberlei's GDP is less sensitive than Clarkistan's GDP to fluctuations in the components of total spending.

Clarkistan's economy is more sensitive to fluctuations in GDP than Kimberlei's economy. This is because the personal income tax has reduced Kimerlei's multiplier.

Step-by-step explanation:

As Kimberlei multiplier is lower, the government spending fluctuation will have a lower impact than in Clarkistan as the goverment spending multiplier in the latter is higher thus, a fluctuation increases or decrease the GDP in a higher proportion.

Clarkistan Economy is more sensitive as their government has a higher multiplier when it decreases for recessions it will increase by a higher amount

while Kimberlei as the income tax decreases th effect of the multiplier It is lower. thus the change in GDP is also lower