HomeworkLib
Question

20. According to the Keynesian-cross analysis, if the marginal propensity to consume is 0.6, and government expenditures and
100 150 200 BOB
business   economics   
1 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Marginal propensity to consume = 0.6

Government expenditure and lump sum taxes are both increased by 100

Equilibrium income will rise by 100

option(B)

Spending Multiplier = 1/(1-MPC = 1/1-0.6 = 2.5

Income increases by 100*2.5 = 250

Tax multiplier = -MPC/(1-MPC) = -0.6/0.4 = -1.5

Income decreases by 100*1.5 = 150

so, Net increase =250-150 =100

0 0
Add a comment
Know the answer?
Add Answer to:
20. According to the Keynesian-cross analysis, if the marginal propensity to consume is 0.6, and government...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • 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...

  • Suppose that the marginal propensity to consume if.6 and that there is an increase in government...

    Suppose that the marginal propensity to consume if.6 and that there is an increase in government expenditure of 5. a) According to the Keynesian cross model, what is the change in output that results from this policy change? b) Describe the graphical impact that this change will have on the Keynesian cross model c) Why is the change in output different from the change in government expenditure? Explain how this process works intuitively.

  • Here are some facts about the economy of Inferior. Marginal propensity to consume 3/5 marginal propensity...

    Here are some facts about the economy of Inferior. Marginal propensity to consume 3/5 marginal propensity to import 0 autonomous consumption 4 exports 0 private investment 20 income tax rate 0 government expenditures 0 Income consumption investment government aggregate expenditures expenditures 0 10 20 30 40 50 60 70 80 90 What is equilibrium GDP?

  • If marginal propensity to consume falls. How does this affect the Keynesian cross model? Then how...

    If marginal propensity to consume falls. How does this affect the Keynesian cross model? Then how does it affect the IS Curve?

  • Here are some facts about the economy of Inferior. Marginal propensity to consume 3/5 marginal propensity...

    Here are some facts about the economy of Inferior. Marginal propensity to consume 3/5 marginal propensity to import 0 autonomous consumption 4 exports 0 private investment 20 income tax rate 0 government expenditures 0 Income consumption investment government aggregate expenditures expenditures 0 10 20 30 40 50 60 70 80 90 How much is consumption when income equals 10

  • Solve 1. 2. 3. 4. 5. 1 Keynesian Cross Assume that households' consumption function is given...

    Solve 1. 2. 3. 4. 5. 1 Keynesian Cross Assume that households' consumption function is given by C(Y -T) 50+ 0.75(Y T), that firms' investment function is I(r) 150 10r, government spending is G 150, and the tax bill T 200. 1. What is the Marginal Propensity to Consume "MPC")? 2. What is the equilibrium level of real GDP in the goods market if the real interest rate is 5%? (Plug in r = 5 for 5%, rather than 0.05...

  • Suppose the marginal propensity to consume is 0.7 and the government votes to increase taxes by...

    Suppose the marginal propensity to consume is 0.7 and the government votes to increase taxes by $1.5 billion. Round to the nearest tenth if necessary. Assume the tax rate and the marginal propensity to import are 0. Calculate the tax multiplier tax multiplier:-2.3 Calculate the resulting change in the equilibrium quantity of real GDP demanded -3.5 billion

  • 10. In the Keynesian Cross analysis, if the consumption function is given by C = 100...

    10. In the Keynesian Cross analysis, if the consumption function is given by C = 100 + 0.6(Y − T) and planned investment is 100, G = T = 100, then equilibrium Y is: a) 350 b) 400 c) 600 d) 750 11. Assume that the money demand function is L(r) = 2200 − 200r, where r is the interest rate in percent. The money supply is 2000 and the price level is 2. The equilibrium interest rate is percent....

  • Assuming that marginal propensity to consume is not zero, and that the balanced budget multiplier is...

    Assuming that marginal propensity to consume is not zero, and that the balanced budget multiplier is positive, a decrease in lump-sum personal income taxes will most likely result in an increase in real GDP because which of the following must occur? I. Government spending decreases to maintain a balanced budget. II. Consumption spending increases because disposable personal income increases III. Investment spending decreases because disposable personal income increases O I only III only II only 0 I and III only

  • 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...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT