Given, MPC = 0.5
Spending multiplier can be determined using the following formula
MPS = 2
Now, determine the tax multiplier using the following formula
Tax Multiplier = - (MPS -1) = -(2-1) = -1
To determine increase in GDP multiply multiplier by decrease in taxes
Thus in order to increase GDP by $ 360 billion the Government has to decrease tax by the same amount that is $ 360 billion.
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Let's say that we are experiencing a recession. How much will the government have to decrease...
Assume that a hypothetical economy with an MPC of.8is experiencing severe recession. a) By how much would government spending have to increase to shift the aggregate demand curve rightward by $50 billion (nominal terms)? Ans: Show work: b) How large a tax cut would be needed to achieve this same increase in aggregate demand (nominal terms)? Ans: Show work: c) Why the difference in a) and b) above? (One sentence)
1) Suppose that the national economy is experiencing a recession with an estimated recessionary gap of $10 billion. Congress is considering the use of fiscal policy to ease the recession, and due to current political sentiments, it has determined that the maximum spending increase the government is willing to support is $3 billion. The government wants to make up the remainder of the recessionary gap using tax cuts. If a spending increase of $3 billion is approved and the MPC...
Assume that a hypothetical economy with an MPC of 0.8 is experiencing severe recession. a. By how much would government spending have to rise to shift the aggregate demand curve rightward by $25 billion? billion How large a tax cut would be needed to achieve the same increase in aggregate demand? Instructions: Round your answer to 2 decimal places and enter your answer as a positive number. Tax cut - ARRASANTA billion. b. Determine one possible combination of government spending...
Assume that a hypothetical economy with an MPC of 0.8 is
experiencing severe recession.
Instructions: In part a, round your answers to 2 decimal
places. Enter your answers as positive numbers. In part b, enter
your answers as whole numbers.
a. By how much would government spending have to rise to shift
the aggregate demand curve rightward by $50 billion?
___billion
How large a tax cut would be needed to achieve the same
increase in aggregate demand?
___billion
b. Determine...
7. Recall that, based on the multiplier, we can have a larger change in the economy as a result of an increase in spending (or decrease). a. current GDP of the United States? b. Let's say that the current downturn is a recession that shrinks GDP by thirty percent. What will the gap in GDP between the new GDP and what potential output could be? (difference between new and old GDP) c. Let's say that the people spend ninety five...
Assume that a hypothetical economy with an MPC of 0.8 is experiencing severe recession. Instructions: In part a, round your answers to 2 decimal places. Enter positive numbers. In part b, enter your answers as whole numbers. a. By how much would government spending have to rise to shift the aggregate demand curve rightward by $50 billion? $________ billion. How large a tax cut would be needed to achieve the same increase in aggregate demand? $________ billion. b. Determine one...
1. When an economy is experiencing a recession and the MPC = 4/5, a $5 billion dollar increase in government spending will cause output to increase by $20 billion $400 million $25 billion $160 million2. Which of the following is the most frequently used monetary policy tool of the Federal Reserve to change the money supply? the discount rate open market operations changing tax rates the required reserve ratio3. During the 2008-2009 recession, the Federal Reserve provided additional liquidity into the financial system. This ultimately reduced the federal funds rate, which...
If the MPC is .75 and the federal government decreases taxes by $200 billion, how much will real GDP be expected to increase?
QUESTION 12 In the aggregate expenditure model if the government of Pasedonia decides to increase government spending by $ 100 billion and to finance this increase in government spending the government of Pasedonia increases taxes by $ 100 billion what effect will this have on the economy? (assume MPC=0.75) O A GDP stays the same OB GDP increases by $ 100 billion OC. GDP will increase by $ 400 billion D.GDP will decrease QUESTION 13 An example of an automatic...
If the MPC is .75 and the federal government spends an extra $200 billion, how much will real GDP be expected to increase?