1. Explain the effects of the following actions on equilibrium income (Assume that the marginal propensity...
1. Explain the effects of the following actions on equilibrium income (Assume that the marginal propensity to consume is 0.8).
a. Government purchases rise by $10 billion.
b. Taxes fall by $10 billion.
Explain how fiscal policy can be used to close the (a) contractionary gap and (b) inflationary gap.
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1. Explain the effects of the following actions on equilibrium
income (Assume that the marginal propensity...
1. Explain the effects of the following actions on equilibrium income, assuming that the marginal propensity...
1. Explain the effects of the following actions on equilibrium income, assuming that the marginal propensity to consume is 0.7 a. Government purchases rise by $60 billion. b. Taxes fall by $60 billion. 2. Explain how fiscal policy can be used to close the (a) contractionary gap and (b) inflationary gap.
1. Explain the effects of the following actions on equilibrium income, assuming that the marginal propensity...
1. Explain the effects of the following actions on equilibrium income, assuming that the marginal propensity to consume is 0.7 a. Government purchases rise by $60 billion. (show working) b. Taxes fall by $60 billion. (show your work) 2. Explain how fiscal policy can be used to close the (a) contractionary gap and (b) inflationary gap. 3. Discuss some of the challenges associated with expansionary fiscal policy (not less than 300 words). 4. How serious is the national debt to...
1-Assume that an economy with an MPC of .98 and marginal propensity to import of .1...
1-Assume that an economy with an MPC of .98 and marginal propensity to import of .1 experiences an inflationary gap and net export is $500 billion. In what direction, and by what amount, will consumption change? 2-If the government decides to use monetary policy to close the gap, what type of monetary policy would you recommend? Be very specific. 3-Explain how your recommendation will affect the equilibrium level of GDP. Illustrate your answer with a graph. PLEASE ANSWER 3 OF...
Assume that Equilibrium GDP is $4,000 billion. Potential GDP is $5,000 billion. The marginal propensity to...
Assume that Equilibrium GDP is $4,000 billion. Potential GDP is $5,000 billion. The marginal propensity to consume is 4/5 (0.8). By how much and in what direction should government purchases be changed? Group of answer choices increase by $200 billion increase by $1,000 billion decrease by $1,000 billion increase by $100 billion
Assume that the economy is$500 billion above its full-employment GDP and the marginal propensity to consume...
Assume that the economy is$500 billion above its full-employment GDP and the marginal propensity to consume is 0.75 Give a fiscal policy recommendation to close the gap in GDP. How much is needed? Note: This will depend on what fiscal policy tool you recommend in a) Show your calculations to receive full points. (you can assume AD shortfall = GDP gap) How would this policy change affect the economy's budget position?
Currently, a government's budget is balanced. The marginal propensity to consume is 0.80. The government has...
Currently, a government's budget is balanced. The marginal propensity to consume is 0.80. The government has determined that each additional $10 Billion in new government debt it issues to finance a budget deficit pushes up the market interest rate by 0.1 percentage point. It has also determined that every 0.1 percentage point change in the market interest rate generates a change in investment expenditures equal to $2 Billion. Finally, the government knows that to close a recessionary gap and take...
People decide to save 20 percent of their incomes. The value of the marginal propensity to...
People decide to save 20 percent of their incomes. The value of the marginal propensity to consume is ________ and the value of the spending multiplier is ________. 0.8; 80 percent 0.2; 1.25 0.8; 5 0.2; 4 0.8; 2 percent 2. Country Z is suffering from the effects of a negative supply shock. If the government’s main goal is to return output to potential, then it will ________. If the government’s main goal is to maintain low and stable inflation,...
15. According to the Keynesian-cross analysis, if MPC stands for marginal propensity to consume, then a...
15. According to the Keynesian-cross analysis, if MPC stands for marginal propensity to consume, then a rise in taxes of ΔT will: A) decrease equilibrium income by ΔT. B) decrease equilibrium income by ΔT/(1 – MPC). C) decrease equilibrium income by (ΔT)(MPC)/(1 – MPC). D) not affect equilibrium income at all. 16. Assume that a country’s MPS is equal to 0.4 and government expenditure is lowered by $20 billion, what is the effect on the country’s Y? A) It will...
Question 1 In the economy of Zip, the marginal propensity to consume is 0.8. Investment is...
Question 1 In the economy of Zip, the marginal propensity to consume is 0.8. Investment is $60 billion, government expenditures on goods and services are $50 billion, and autonomous taxes are $60 billion. Zip has no exports and no imports. (a) The government increases its expenditures on goods and services to $60 billion. What is the change in equilibrium expenditure? (b) What is the value of the government expenditures multiplier? (c) The government continues to buy $60 billion...
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?
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