Homework Answers
Consumption expenditure increases by 0.5(300)= 150 billion
Consumption expenditure increases by 150 billion due to decrease in taxes. On the hand output decreases due to decrease in government spending by 300/(1-0.5)= 600
Net effect on output is a decrease by 600-300= 300
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What happens to aggregate output if both taxes and government spending are lowered by $300 billion...
Say the MPC is .6 and suppose taxes are cut by $300 billion and government spending...
Say the MPC is .6 and suppose taxes are cut by $300 billion and government spending is increased by $200 billion. Use the multipliers to figure the effect of that change in fiscal policy on spending. The increase due to the tax cut =______. The increase due to the increase in government spending =_______. The total increase=_________. (Government spending multiplier = 1/(1-mpc) Tax multiplier = mpc/(1-mpc))
Question Completion Status: G 300 Output Net Consumption Investment Government (Income) Taxes Spending Spending Purchases т...
Question Completion Status: G 300 Output Net Consumption Investment Government (Income) Taxes Spending Spending Purchases т 500 100 300 100 1,000 100 300 1.500 100 900 300 2,000 100 1,200 300 100 2,500 100 1,500 300 600 100 100 100 At an output level of $1.500 billion, the level of aggregate expenditure is billion A $1,300 B. 51.400 C$1.500 D.$1,600
Suppose the marginal propensity to consume is 0.8. The government increases government spending and taxes by...
Suppose the marginal propensity to consume is 0.8. The government increases government spending and taxes by $10 billion. What happens to aggregate output demanded?
Suppose economists observe that an increase in government spending of $5 billion raises the real aggregate...
Suppose economists observe that an increase in government spending of $5 billion raises the real aggregate output level by $20 billion. (a) In the absence of the crowding out effect, what would the numerical value of marginal 1. propensity to consume (MPC)? (b) Now suppose the crowding-out effect also comes to play.Should the new numerical value of marginal propensity to consume (MPC) be larger or smaller than that of your answer in part (a)? Explain. (Hint: the multiplier effect and...
According to the classical model, if the government increases spending by $60 billion which of the...
According to the classical model, if the government increases spending by $60 billion which of the following will be the result? total aggregate expenditure will grow by $60 billion total aggregate expenditure will increase by a multiple of $60 billion total consumption and investment will fall by $60 billion net exports will rise by $60 billion Moving to another question will save this response.
QUESTION 12 In the aggregate expenditure model if the government of Pasedonia decides to increase government...
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...
Expert economists in the economy of Bongo estimate the following: Billion Bongos Real output/income Government purchases...
Expert economists in the economy of Bongo estimate the following: Billion Bongos Real output/income Government purchases Total net taxes Investment spending planned) 100 Assume that Bongolers consume 80 percent of their disposable incomes and save 20 percent You are asked by the business editor of the Bongo Tribune to predict the events of the next forw months By using the data given and assuming that investment is constant, if the government of Bongo makes no changes, you predict that income...
MPC Spending Multiplier Change in income 100 20 0.99 0.95 0.6 0.5 Change in government spending...
MPC Spending Multiplier Change in income 100 20 0.99 0.95 0.6 0.5 Change in government spending $15 $100 -$400 $450 $1,500 $2,000 -$1,000 $900 2.5 2.0 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 spending by $2 billion and finances it entirely by borrowing. This deficit...
14. (2 pt) Explain the effect of a discretionary cut in taxes of $40 billion on...
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...
Explain the change in aggregate demand when 1)Taxes are increased by $100 Billion 2. (7 pts)...
Explain the change in aggregate demand when
1)Taxes are increased by $100 Billion
2. (7 pts) Both 1 and 2 occur simultaneously (please try to do
it ASAP)
that was what the instructor privided
Problem 4 "Monetary Policy" (20 points) Explain the change in aggregate demand when: 1. (6 pts) Government expenditure on goods and services increases by $100 Billion 2. (7 pts) Taxes are increased by $100 Billion 3. (7 pts) Both 1 and 2 occur simultaneously
Question Completion Status: G 300 Output Net Consumption Investment Government (Income) Taxes Spending Spending Purchases т 500 100 300 100 1,000 100 300 1.500 100 900 300 2,000 100 1,200 300 100 2,500 100 1,500 300 600 100 100 100 At an output level of $1.500 billion, the level of aggregate expenditure is billion A $1,300 B. 51.400 C$1.500 D.$1,600
Suppose economists observe that an increase in government spending of $5 billion raises the real aggregate output level by $20 billion. (a) In the absence of the crowding out effect, what would the numerical value of marginal 1. propensity to consume (MPC)? (b) Now suppose the crowding-out effect also comes to play.Should the new numerical value of marginal propensity to consume (MPC) be larger or smaller than that of your answer in part (a)? Explain. (Hint: the multiplier effect and...
According to the classical model, if the government increases spending by $60 billion which of the following will be the result? total aggregate expenditure will grow by $60 billion total aggregate expenditure will increase by a multiple of $60 billion total consumption and investment will fall by $60 billion net exports will rise by $60 billion Moving to another question will save this response.
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...
Expert economists in the economy of Bongo estimate the following: Billion Bongos Real output/income Government purchases Total net taxes Investment spending planned) 100 Assume that Bongolers consume 80 percent of their disposable incomes and save 20 percent You are asked by the business editor of the Bongo Tribune to predict the events of the next forw months By using the data given and assuming that investment is constant, if the government of Bongo makes no changes, you predict that income...
MPC Spending Multiplier Change in income 100 20 0.99 0.95 0.6 0.5 Change in government spending $15 $100 -$400 $450 $1,500 $2,000 -$1,000 $900 2.5 2.0 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 spending by $2 billion and finances it entirely by borrowing. This deficit...
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...
Explain the change in aggregate demand when
1)Taxes are increased by $100 Billion
2. (7 pts) Both 1 and 2 occur simultaneously (please try to do
it ASAP)
that was what the instructor privided
Problem 4 "Monetary Policy" (20 points) Explain the change in aggregate demand when: 1. (6 pts) Government expenditure on goods and services increases by $100 Billion 2. (7 pts) Taxes are increased by $100 Billion 3. (7 pts) Both 1 and 2 occur simultaneously
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