Why would a cut in government expenditure (say by $10 million) not be completely compensated by...
Why would a cut in government expenditure (say by $10 million) not be completely compensated by a tax cut that would generate extra $10 million in income for the population? Be specific in your explanation.
Homework Answers
A cut in the government expenditure by $10 million will not compensate for a $10 million tax cut because both the government and tax cut have different multiplier in the market. A decrease in the government expenditure will decrease the total output by the actual amount and the multiplier, similarly a tax cut will also increase the income by a certain amount and that will lead to a higher income by the actual amount and the multiplier but the value of the tax multiplier will be always lower than the expenditure multiplier decreasing the output from the government expenditure cut.
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Why would a cut in government expenditure (say by $10
million) not be completely compensated by...
Consumption expenditure = $262,619.0 million Planned investment = $86,227.0 million Government expenditure = $113,601.0 million Export...
Consumption expenditure = $262,619.0 million Planned investment = $86,227.0 million Government expenditure = $113,601.0 million Export expenditure = $99,804.0 million Import expenditure = $97,424.0 million Autonomous taxes = $56,700.0 million Income tax rate = 28% Marginal propensity to save = 0.4 Marginal propensity to import = 0.1 Part (10) Illustrate the GDP gap using the AD-AS Model and the AE Model, if the natural level of income is estimated as $490,000 million. Part (11) If the government wants to close...
Problem 4 Consider the following economy: Consumption Expenditure 446,832 million Planned Investment Expenditure 346,877 million Government...
Problem 4
Consider the following economy:
Consumption Expenditure
446,832 million
Planned Investment Expenditure
346,877 million
Government Expenditure
446,832 million
Exports
402,443 million
Imports
388,374 million
Marginal Propensity to Save
0.3
Marginal Tax Rate
0.32
Autonomous Taxes
301,240 million
Marginal Propensity to Import (nx)
0.04
(a) Calculate the equilibrium level of
income. (0.5 mark)
(b) Calculate autonomous consumption. (0.5
mark)
(c) Calculate autonomous net exports. (0.5
mark)
(d) Calculate autonomous planned
expenditures. (0.5 mark)
(e) Calculate the marginal leakage rate. (0.5
mark)
(f) Assume that the...
If government expenditure increases without rise in current tax rate, consumer expects future tax to rise...
If government expenditure increases without rise in current tax rate, consumer expects future tax to rise from which makes expected future income fall, in turn, private consumption decreases and private savings goes up, however, National savings decreases because Public savings decreases more than increases in private savings, that is why national savings decreases. This is how savings decreases when government expenditure increases. My question is How do we know that Public savings decreases more than increases in private savings ?...
Some years ago, the Federal government cut the GST (the federal sales tax on goods and...
Some years ago, the Federal government cut the GST (the federal sales tax on goods and services which Ontario later blended into the PST to create the HST) by two percentage points. The federal government could have transferred this cut to income taxes instead, i.e. it could have decreased taxes on income instead of on the GST. Sources of income that taxes are paid on include labour (work) as well as investment earnings. Assuming that taxes are to be cut,...
h) Suppose taxes are cut to .18Y. What would happen to the equilibrium level of income...
h) Suppose taxes are cut to .18Y. What would happen to the equilibrium level of income in this economy (how much would it change)? 4) Suppose that there exists an economy, Macroland, which is characterized by the following behavioral equations C=-340+.9Y I= 2007.14 G = 2200 T= 2Y X = 1100 Q = 300+.1 Yd Ya=Y-T. Note that taxes and investment are based on total income (Y), not on disposable income (Y). a) Find an expenditure function relating expenditures (E)...
3. Why would the use of gasoline decline if its price rose as a result of...
3. Why would the use of gasoline decline if its price rose as a result of a gasoline tax but the effect of the price rise was compensated by a tax rebate? Give a graphical representation of your answer identifying the income effect, substitution effect. Which of these effects will the rebate represent?
2 2 a negative sign() in front of those numbers. . If it increases government purchases,...
2 2 a negative sign() in front of those numbers. . If it increases government purchases, real GDP will increase by $ billion suggesting an expenditures multiplier of If the government instead lowers taxes, real GDP will increase by $ billion, suggesting a tax multiplier of b. Now suppose another country's MPC is 0.8, and in this country, government seeks to reduce real GDP by either decreasing government purchases by $40 billion or by raising taxes by the same amount...
Short Essay Assignment: 1. Explain why lunch." an economist would say, "There is no such thing as a free (B...
Short Essay Assignment: 1. Explain why lunch." an economist would say, "There is no such thing as a free (Be sure to make references to your diagram in your response to the question). Note: Please number your responses with numbering that match the question numbers. Eg 1a, 1b,1c, etc Use appropriate diagrams/graphs your responses. Graphs must be an illustration of explanation to get any points. A correct graph with a wrong explanation gets ZERO points. With an (Diagram 2point ;...
Why would the use of gasoline decline if its price rose as a result of a gasoline tax but the effect of the price rise w...
Why would the use of gasoline decline if its price rose as a result of a gasoline tax but the effect of the price rise was compensated by a tax rebate? Give a graphical representation of your answer identifying the income effect, substitution effect. Which of these effects will the rebate represent?
Tannen Industries is considering an expansion. The necessary equipment would be purchased for $9 million and...
Tannen Industries is considering an expansion. The necessary equipment would be purchased for $9 million and will be fully depreciated at the time of purchase, and the expansion would require an additional $2 million investment in net operating working capital. The tax rate is 25%. What is the initial investment outlay after bonus depreciation is considered? Write out your answer completely. For example, 13 million should be entered as 13,000,000. Round your answer to the nearest dollar. Enter your answer...
Problem 4
Consider the following economy:
Consumption Expenditure
446,832 million
Planned Investment Expenditure
346,877 million
Government Expenditure
446,832 million
Exports
402,443 million
Imports
388,374 million
Marginal Propensity to Save
0.3
Marginal Tax Rate
0.32
Autonomous Taxes
301,240 million
Marginal Propensity to Import (nx)
0.04
(a) Calculate the equilibrium level of
income. (0.5 mark)
(b) Calculate autonomous consumption. (0.5
mark)
(c) Calculate autonomous net exports. (0.5
mark)
(d) Calculate autonomous planned
expenditures. (0.5 mark)
(e) Calculate the marginal leakage rate. (0.5
mark)
(f) Assume that the...
h) Suppose taxes are cut to .18Y. What would happen to the equilibrium level of income in this economy (how much would it change)? 4) Suppose that there exists an economy, Macroland, which is characterized by the following behavioral equations C=-340+.9Y I= 2007.14 G = 2200 T= 2Y X = 1100 Q = 300+.1 Yd Ya=Y-T. Note that taxes and investment are based on total income (Y), not on disposable income (Y). a) Find an expenditure function relating expenditures (E)...
2 2 a negative sign() in front of those numbers. . If it increases government purchases, real GDP will increase by $ billion suggesting an expenditures multiplier of If the government instead lowers taxes, real GDP will increase by $ billion, suggesting a tax multiplier of b. Now suppose another country's MPC is 0.8, and in this country, government seeks to reduce real GDP by either decreasing government purchases by $40 billion or by raising taxes by the same amount...
Short Essay Assignment: 1. Explain why lunch." an economist would say, "There is no such thing as a free (Be sure to make references to your diagram in your response to the question). Note: Please number your responses with numbering that match the question numbers. Eg 1a, 1b,1c, etc Use appropriate diagrams/graphs your responses. Graphs must be an illustration of explanation to get any points. A correct graph with a wrong explanation gets ZERO points. With an (Diagram 2point ;...
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