If a $200 million increase in investment results in a $600 million increase in overall consumption,...
If a $200 million increase in investment results in a $600 million increase in overall consumption, what would be the result of a $200 million increase in government spending in this same economy?
A) A $600 million increase in overall consumption. B) A decline in consumption of $600 million. C) An increase in consumption of less than $600 million. D) An increase in consumption of less than $200 million. E) Cannot be determined on the basis of the information provided.
Homework Answers
"A"
Government expenditure will also increase the overall consumption by the amount spend multiplied by the multiplier in the economy. The answer is "A".
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If a $200 million increase in investment results in a $600
million increase in overall consumption,...
An increase in government spending of $200 million financed by a new tax of $200 million...
An increase in government spending of $200 million financed by a new tax of $200 million in an economy with a marginal propensity to consume of .90 could result in an increase in nominal GDP (assuming a closed economy with no taxes or leakages) of up to how much? (a) $0; (b) $2,000 million; (c) $180 million; (d) $200 million. 2. One important consequence of widened income and wealth disparities is a: (a) higher rate of inflation than would exist...
Question 8 0.9 pts For this problem think about the goods market. Suppose the consumption equation is represented by th...
Question 8 0.9 pts For this problem think about the goods market. Suppose the consumption equation is represented by the following: C 200 0.75YD (where YD is disposable income), that investment is fixed ), and that government expenditures and taxes are determined exogenously. Suppose the economy is currently in equilibrium, but the government decides that it wants to achieve two goals: lead the economy to more output, and keep the government deficit at the current level. To achieve this, the...
if crowding out occurs, an increase in government spending a) decreases the interest rate and consumption...
if crowding out occurs, an increase in government spending a) decreases the interest rate and consumption and investment spending rise b) decrease the interest rate and consumption and investment spending decline c) increases the interest rate and consumption and investment spending decline d) increase the interest rate and consumption and investment spending rise
What is crowding out? O a reduction in consumption and investment spending that results from government...
What is crowding out? O a reduction in consumption and investment spending that results from government borrowing O a reduction in consumption and investment spending that results from increased international trade O a reduction in government borrowing resulting from increases in consumption and investment spending O a reduction in investment, but not consumption, that results from government borrowing O a reduction in consumption, but not investment, that results from government borrowing are a mechanism by which crowding out occurs. OIncreases...
(1) Calculate the government spending multiplier if, an increase in government spending by $5 million increases...
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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...
An economy is initially at full employment, but a decrease in planned investment spending (a comp...
An economy is initially at full employment, but a decrease in planned investment spending (a component of autonomous expenditure) pushes the economy into recession. Assume that the marginal propensity to consume (mpc) of this economy is 0.75 and that the multiplier is 4 a. How large is the recessionary gap after the fall in planned investment? The recessionary gap is times the size of the fall in planned investment. b. By how much would the government have to change its...
Pessimistic expectations for the future economy reduces overall consumption. Using your previous results on changes to...
Pessimistic expectations for the future economy reduces overall consumption. Using your previous results on changes to the real interest rate and the net capital outflow (NCO), let's turn our attention to the Foreign-Currency Exchange Market. As a result of pessimistic expectations and lower overall consumption, based on the Foreign-Currency Exchange market, the real exchange rate will _____________ and net exports will _____________. A increase; decrease B increase; increase C decrease; decrease D decrease; increase
Investment increases by $200 million and the value of MPC is 0.75. What would be the...
Investment increases by $200 million and the value of MPC is 0.75. What would be the total increase in spending? 1 a. $750 million b. $800 million c. $266 million L d. $200 million
Question 1. Consider a closed economy to which the Keynesian-cross analysis applies. Consumption is given by...
Question 1. Consider a closed economy to which the Keynesian-cross analysis applies. Consumption is given by the equation C= 200 + 2/3(Y-T). Planned investment is 300, as are government spending and taxes. (18 points) a. If Y is 1,500, what is planned spending? Should equilibrium Y be higher or lower than 1,500? (4 points) b. What is equilibrium Y? (Hint: Substitute the values of equations for planned consumption, investment, and government spending into the equation Y C+I+ G and then...
Question 8 0.9 pts For this problem think about the goods market. Suppose the consumption equation is represented by the following: C 200 0.75YD (where YD is disposable income), that investment is fixed ), and that government expenditures and taxes are determined exogenously. Suppose the economy is currently in equilibrium, but the government decides that it wants to achieve two goals: lead the economy to more output, and keep the government deficit at the current level. To achieve this, the...
What is crowding out? O a reduction in consumption and investment spending that results from government borrowing O a reduction in consumption and investment spending that results from increased international trade O a reduction in government borrowing resulting from increases in consumption and investment spending O a reduction in investment, but not consumption, that results from government borrowing O a reduction in consumption, but not investment, that results from government borrowing are a mechanism by which crowding out occurs. OIncreases...
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...
An economy is initially at full employment, but a decrease in planned investment spending (a component of autonomous expenditure) pushes the economy into recession. Assume that the marginal propensity to consume (mpc) of this economy is 0.75 and that the multiplier is 4 a. How large is the recessionary gap after the fall in planned investment? The recessionary gap is times the size of the fall in planned investment. b. By how much would the government have to change its...
Investment increases by $200 million and the value of MPC is 0.75. What would be the total increase in spending? 1 a. $750 million b. $800 million c. $266 million L d. $200 million
Question 1. Consider a closed economy to which the Keynesian-cross analysis applies. Consumption is given by the equation C= 200 + 2/3(Y-T). Planned investment is 300, as are government spending and taxes. (18 points) a. If Y is 1,500, what is planned spending? Should equilibrium Y be higher or lower than 1,500? (4 points) b. What is equilibrium Y? (Hint: Substitute the values of equations for planned consumption, investment, and government spending into the equation Y C+I+ G and then...
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