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6. Considering how fiscal policy influences aggregate demand, explain the theory behind the multiplier effect b)...
1. Suppose the MPC is 0.8 and the crowding out effect is $30 billion. The government...
1. Suppose the MPC is 0.8 and the crowding out effect is $30 billion. The government aims to increase GDP by $250 billion. a) Calculate the fiscal multiplier b) how much the government needs to increase spending to increase GDP by $250 billion c) Calculate the tax cut multiplier, d) How much the government needs to cut taxes to increase GDP by $250 billion? e) Explain why the tax multiplier is smaller than the fiscal multiplier. f) If you were...
Instructions: Enter your answers as a whole number. a. How much does aggregate demand need to...
Instructions: Enter your answers as a whole
number.
a. How much does aggregate demand need to change to restore the
economy to its long-run equilibrium?
$ ___________ billion
b. If the MPC is 0.75, how much does government purchases need
to change to shift aggregate demand by the amount you found in part
a?
$ ___________ billion
Suppose instead that the MPC is 0.8.
c. How much does aggregate demand and government purchases need
to change to restore the economy...
Consider the following statement: "Fiscal policy is a very precise tool for controlling aggregate demand. If...
Consider the following statement: "Fiscal policy is a very precise tool for controlling aggregate demand. If the government wants to increase aggregate demand by $5 billion, all it has to do is carry out carry out exactly $5 billion worth of government spending". Is this statement true or false? Explain in the answer considering both a closed economy and open economy. Also consider the difference between fixed and floating exchange rates in the open economy.
Determine how each of the following monetary or fiscal policy would shift the aggregate demand curve. Illustrate and explain the following effect. a. As the economy is in the state of recession, the government decided to increase government spen
1. Determine how each of the following monetary or fiscal policy would shift the aggregate demand curve. Illustrate and explain the following effect. a. As the economy is in the state of recession, the government decided to increase government spending. b. Central bank decided to fight an inflationary economy by reducing money supply. c. Under full employment economy, the government has decided to increase taxes on income earned by people.
Q1. What are the “automatic” and “discretionary” aspects of fiscal policy and how do they fit...
Q1. What are the “automatic” and “discretionary” aspects of fiscal policy and how do they fit Keynesian fiscal policy to stimulate the economy in a recession, in terms of Government spending, taxation and budget deficits in a Demand driven economy. Q2. Use the consumption function model to explain the impact of government spending using the concepts of the Paradox of Thrift, the Multiplier effect and the role of Expectations (Consumer Confidence.) Q3. Explain two arguments against Keynesian fiscal policy, one...
Briefly explain how fiscal policy affected the aggregate demand and aggregate supply in economy by using one of the productive sector in Malaysia as an example.
Briefly explain how fiscal policy affected the aggregate demand and aggregate supply in economy by using one of the productive sector in Malaysia as an example.
1,2,3,4,5,6,7,8,9,10 1.Explain the effect of a discretionary cut in taxes of $40 billion on the economy when the economy’s marginal propensity to consume is .75. How does this discretionary fiscal po...
1,2,3,4,5,6,7,8,9,10 1.Explain the effect of a discretionary cut in taxes of $40 billion on the economy when the economy’s marginal propensity to consume is .75. How does this discretionary fiscal policy differ from a discretionary increase in government spending of $40 billion? 2.Explain what is meant by a built-in stabilizer and give two examples. 3.Differentiate between discretionary fiscal policy and nondiscretionary or built-in stabilization policy. 4.What does the “standardized budget” measure and of what significance is this concept? 6.What are...
Question 1 Keynes, the Multiplier and Fiscal Policy 1.During the 1930s the U.S. entered the Great...
Question 1
Keynes, the Multiplier and Fiscal Policy 1.During the 1930s the U.S. entered the Great Depression. During the Great depression investment fell from a yearly rate of $16.7 billion to $1.7 billion. In 1932, President Hoover increased income taxes. Assume the MPC is .8. What effect did the decline in investment have on AD? Use a graph to illustrate a) your answer. ちBilio) Use an AF graph model to show the effect of the decline minvestment. What is the...
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...
Question 2 Explain how the effectiveness of contractionary monetary policy (dM Fiscal policy (dg <0) depends...
Question 2
Explain how the effectiveness of contractionary monetary policy (dM Fiscal policy (dg <0) depends on the magnitude of the response of NX to in r or dNX/dr. Make sure to provide your answer with the relevant mathematical equations, and economic interpretation. points) Question Two: Assume the following equations summarize the structure of an economy. с =C, +0.7(Y - T) са = 2,000 - 50 т * 150 + 0.15Y (M/P) 0.3Y - 10r M/P 3,000 2,000 -10r G...
Instructions: Enter your answers as a whole
number.
a. How much does aggregate demand need to change to restore the
economy to its long-run equilibrium?
$ ___________ billion
b. If the MPC is 0.75, how much does government purchases need
to change to shift aggregate demand by the amount you found in part
a?
$ ___________ billion
Suppose instead that the MPC is 0.8.
c. How much does aggregate demand and government purchases need
to change to restore the economy...
Question 1
Keynes, the Multiplier and Fiscal Policy 1.During the 1930s the U.S. entered the Great Depression. During the Great depression investment fell from a yearly rate of $16.7 billion to $1.7 billion. In 1932, President Hoover increased income taxes. Assume the MPC is .8. What effect did the decline in investment have on AD? Use a graph to illustrate a) your answer. ちBilio) Use an AF graph model to show the effect of the decline minvestment. What is the...
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...
Question 2
Explain how the effectiveness of contractionary monetary policy (dM Fiscal policy (dg <0) depends on the magnitude of the response of NX to in r or dNX/dr. Make sure to provide your answer with the relevant mathematical equations, and economic interpretation. points) Question Two: Assume the following equations summarize the structure of an economy. с =C, +0.7(Y - T) са = 2,000 - 50 т * 150 + 0.15Y (M/P) 0.3Y - 10r M/P 3,000 2,000 -10r G...
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