Homework Answers
Spending multiplier:-
Spending multiplier shows multiple by which GDP increases or decreases in response to an increase or decreases in consumption and savings.spending multiplier represented by the following formula.
spending multiplier = 1/1-mpc
or
1/mps
where MPC is the marginal propensity to consume, means that the proportion of disposable income which individuals spend on consumption.
MPS is the marginal propensity to save means that the proportion of disposable income which individuals spend on savings.
MPS is also called Marginal Leakage Rate.
there is a negative relationship between MPS and spending multiplier. that is, higher the value of MPS, lower the value of spending multiplier. Also there is positive relationship between MPC and spending multiplier. Higher the value of MPC,higher the value of spending multiplier.
conclusion:
Recession phase of the economy shows negative growth. During that phase people tend to save more due to the fear of unemployment. So during Recession MPS is high which makes spending multiplier lower.(negative relation).
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we W den nan ATT CATAT End untiads antaan In 3. During times of recession, households...
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--- - - -- 3. During times of recession, households tend to increase their savings out of current disposable Income. How does this effect the size of the spending multiplier?
1. To stimulate economic activity during a severe recession, the strongest appropriate fiscal policy is: a....
1. To stimulate economic activity during a severe recession, the strongest appropriate fiscal policy is: a. an increase in taxes and/or an increase in government spending b. an increase in taxes and/or a decrease in government spending c. a decrease in taxes and/or an increase in government spending d. a decrease in taxes and/or a decrease in government spending e. a decrease in government purchases and/or a decrease in transfer payments 2. An increase in income tax rates: a. makes...
1. To stimulate economic activity during a severe recession, the strongest appropriate fiscal policy is: a....
1. To stimulate economic activity during a severe recession, the strongest appropriate fiscal policy is: a. an increase in taxes and/or an increase in government spending b. an increase in taxes and/or a decrease in government spending! c. a decrease in taxes and/or an increase in government spending d. a decrease in taxes and/or a decrease in government spending e. a decrease in government purchases and/or a decrease in transfer payments 2. An increase in income tax rates: a. makes...
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Solve 1. 2. 3. 4. 5. 1 Keynesian Cross Assume that households' consumption function is given...
Solve 1. 2. 3. 4. 5.
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3. Fill in the blanks in the table below. Assume that MPC is constant for everyone...
3. Fill in the blanks in the table below. Assume that MPC is constant for everyone in the economy. MPC Spending Multiplier Change in government spending Change in income 100 $15 20 $2,000 0.6 -$400 $450 0.5 $900 4. Assume that the equilibrium in the loanable funds market is at interest rate of 1.25% and quantity of funds at $20 billion. Suppose the current government deficit is zero so government is not borrowing any money. a) Suppose now government increases...
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--- - - -- 3. During times of recession, households tend to increase their savings out of current disposable Income. How does this effect the size of the spending multiplier?
1. To stimulate economic activity during a severe recession, the strongest appropriate fiscal policy is: a. an increase in taxes and/or an increase in government spending b. an increase in taxes and/or a decrease in government spending c. a decrease in taxes and/or an increase in government spending d. a decrease in taxes and/or a decrease in government spending e. a decrease in government purchases and/or a decrease in transfer payments 2. An increase in income tax rates: a. makes...
1. To stimulate economic activity during a severe recession, the strongest appropriate fiscal policy is: a. an increase in taxes and/or an increase in government spending b. an increase in taxes and/or a decrease in government spending! c. a decrease in taxes and/or an increase in government spending d. a decrease in taxes and/or a decrease in government spending e. a decrease in government purchases and/or a decrease in transfer payments 2. An increase in income tax rates: a. makes...
2) During a Recession, the MPC tends to a) Increase, increases b) Decrease, decreases c) Decrease, increases d Increase, decreases which the recessionary gap 3) Suppose that the MPC is .75 and the U.S Federal Government reduces taxes by 10 million dollars. After 3 rounds of the multiplier process RGDP will change by a) 4.23 million b) 17.34 million c) 23.13 million dollars. d) 30 million 4) "George W. Bush's $152 billion tax rebate plan of 2008 was designed to...
14. (2 pt) Explain the effect of a discretionary cut in taxes of $40 billion on the economy when the economy's MPC is .75. How does this discretionary fiscal policy differ from a discretionary increase in government spending of $40 billion? A tax cut of $40 billion will result in initial increase in consumption of S billion). (Note that $10Bil. is saved based on marginal propensity to save (MPS), that is 25 (because 1-MPC-MPS). Then .25 x $40-$10 billion). This...
Solve 1. 2. 3. 4. 5.
1 Keynesian Cross Assume that households' consumption function is given by C(Y -T) 50+ 0.75(Y T), that firms' investment function is I(r) 150 10r, government spending is G 150, and the tax bill T 200. 1. What is the Marginal Propensity to Consume "MPC")? 2. What is the equilibrium level of real GDP in the goods market if the real interest rate is 5%? (Plug in r = 5 for 5%, rather than 0.05...
3. Fill in the blanks in the table below. Assume that MPC is constant for everyone in the economy. MPC Spending Multiplier Change in government spending Change in income 100 $15 20 $2,000 0.6 -$400 $450 0.5 $900 4. Assume that the equilibrium in the loanable funds market is at interest rate of 1.25% and quantity of funds at $20 billion. Suppose the current government deficit is zero so government is not borrowing any money. a) Suppose now government increases...
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