Homework Answers
A.Spending multiplier (known as fiscal multiplier or simply the multiplier) represents the multiple by which GDP increases or decreases in response to an increase and decrease in government expenditures and investment. It is the reciprocal of the marginal propensity to save (MPS)
B.The tax multiplier represents a measure of the change of the Gross Domestic Product (GDP) in response to a change in government taxes. The TM can be simple or complex, depending on whether the change in taxes has an impact only on consumption or on all the GDP components.
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Trips 2 4. Explain what these terms mean: a. spending multiplier b. taxation multiplier
The spending multiplier, m, is 1/(1 MPC). a) If the MPC is 0.9, what is the...
The spending multiplier, m, is 1/(1 MPC). a) If the MPC is 0.9, what is the spending multiplier? b) Now suppose government spending increases by $90 million. By how much will GDP rise? $million
What is the formula for the government spending multiplier? Tax Multiplier? Calculate both multipliers assuming an...
What is the formula for the government spending multiplier? Tax Multiplier? Calculate both multipliers assuming an MPC of .6 Graph an economy in the AD AS model with Potential Output of $600 and Real GDP at $450. Calculate the output gap and identify it as a recessionary or inflationary gap. How much fiscal stimulus is needed to close the gap? show work and use formulas for government spending multiplier and tax multiplier. Show all work Assume the government increases government...
Explain how the multiplier process works with respect to the proposed infrastructure spending in Australia;
Explain how the multiplier process works with respect to the proposed infrastructure spending in Australia;
Answer the following: a. MPC = .7.What is the government spending multiplier? = 1/1-0.7 = 10/3 =...
Answer the following: a. MPC = .7.What is the government spending multiplier? = 1/1-0.7 = 10/3 = 3.33 b. MPC = .85.What is the tax multiplier? = -(0.85/1-0.85) = -17/3 = -5.67 c. If the government spending multiplier is 5, what is the tax multiplier? d. If the tax multiplier is -3, what is the government spending multiplier? e. If government purchases and taxes are increased by $150 billion simultaneously, what will the effect be on equilibrium output (income)?
If the marginal propensity to save is 0.35, the multiplier is 2.86. True False Consumption spending...
If the marginal propensity to save is 0.35, the multiplier is 2.86. True False Consumption spending is $16 million, planned investment spending is $4 million, unplanned investment spending is $2 million, government purchases are $6 million, and net export spending is $1 million. What is aggregate expenditure? $22 million $27 million $26 million $29 million If the multiplier is 5, the marginal propensity to consume must be 0.8. True False
6. A. If the MPC is = to .9, what is the multiplier? B. If...
6. A. If the MPC is = to .9, what is the multiplier? B. If the MPC is = to .75, what is the multiplier? C. If the MPC is = to .6, what is the multiplier? D. If the MPC is = to .5, what is the multiplier? 20 points If the MPC is = to .9, and spending increases by $30 billion, what is the increase in GDP? Show all work. 5 points If the...
a) Explain how automatic stabilizers work, both on the taxation side and on the spending side,...
a) Explain how automatic stabilizers work, both on the taxation side and on the spending side, first in a situation where the economy is producing less than potential GDP and then in a situation where the economy is producing more than potential GDP. b) Do you think the typical time lag for fiscal policy is likely to be longer or shorter than the time lag for monetary policy? Explain your answer c) How would a balanced budget amendment change the...
The multiplier effect applies a. Only to changes in government spending b. To a change in...
The multiplier effect applies a. Only to changes in government spending b. To a change in spending of any component of GDP c. Only to change in the money supply d. Only when the crowding-out effect is sufficiently strong
(1) Calculate the government spending multiplier if, an increase in government spending by $5 million increases...
(1) Calculate the government spending multiplier if, an increase in government spending by $5 million increases real GDP by $20 million. Group of answer choices 0.20 0.25 2 5 4 (2) A major benefit of automatic stabilizers is that they: Group of answer choices guarantee a balanced budget over the course of the business cycle. have a tendency to reduce the national debt. moderate the effect of fluctuations in the business cycle. require legislative review by Congress before they can...
5) A) What is the government spending multiplier? Give a numerical example when the marginal propensity...
5) A) What is the government spending multiplier? Give a numerical example when the marginal propensity to consume is 0.8. B) What are the reasons given in your text for why unemployment is higher in the Europe than the US? 10) A) What variables are you assuming are constant in the above IS curve? B) Relate PI/PC to the slope of the PPC curve and explain how an decrease in it will affect the supply of investment goods using the...
The spending multiplier, m, is 1/(1 MPC). a) If the MPC is 0.9, what is the spending multiplier? b) Now suppose government spending increases by $90 million. By how much will GDP rise? $million
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