1. Consider a two-period economy with lump-sum taxes. Supposement announces a tax cut of 10 in period 1 holding government spendingconstant in periods 1 and 2. (i.e., ATiassuming no debt inherited from period 0, i.e., Bo10 percent.thegovern-10, AGAG20.) We are0. Suppose the interest rate is(a) Calculate the change in taxes in period 2, AT2.(b) Calculate the change in the primary and secondary fiscal deficits in pe-riod 1(c) Calculate the change in the primary and secondary fiscal deficits in pe-riod 2

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Answered: 1. Consider a two-period economy with…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that the investment demand curve in a certain economy is such that investment declines by $110 billion for every 1 percentage point increase in the real interest rate. Also, suppose that the investment demand curve shifts rightward by $190 billion at each real interest rate for every 1 percentage point increase in the expected rate of return from investment. If stimulus spending (an expansionary fiscal policy) by government increases the real interest rate by 2 percentage points, but also raises the expected rate of return on investment by 1 percentage point, how much investment, if any, will be crowded out? Instructions: Enter your answer as a whole number. billion %24
Suppose there were an increase in Government spending of $100 billion. The MPC is 75 andthe tax rate is 2. No. imports a. What is the net impact on the economy if the crowding out effect is equal to $20 billion?b. What if the crowding out effect is $60 billion7c. Which of the two scenarios corresponds to the reaction of an economy which is closer to fullemployment? Explain
Figure 41 Type Current Rate Frictional 2.1 Structural 2.2 Cyclical 2.5 Using Okun's Law and the data in figure 41, if potential output is $550 billion and the marginal propensity to consume for this economy is equal to 80-percent, a proper fiscal policy response would be to: Oa. Increase taxes by $5.5 billion. O b. decrease government expenditures by $5.5 billion. Oc increase government expenditures by $11 billion. O d. decrease taxes by $11 billion.
Assume an economy with no foreign sector, a marginal propensity to save of mps = 0.1, and a marginal income tax rate of t = 1/3. What change in government purchases would lead to an increase in national income of 500? Select one: a. 50 b. 200 c. 500 d. 100 e. 300 O O O
D₂ Which of the following movements would be consistent with the government budget going from deficit to surplus and the simultaneous enactment of an investment tax credit? O a movement from Point A to Point C a movement from Point B to Point A O a movement from Point B to Point F a movement from Point C to Point B
Mc Graw Hill The table below shows some of the expenditure amounts in the economy of Arkinia. The MPC, the MTR, and the MPM are all constant, as are the values of the three injections. a. Complete the table below. Y 0 100 200 300 400 500 608 700 808 T 800 20 40 60 80 100 120 140 160 180 YD 60 -20 140 220 300 380 460 540 620 C 130 195 325 260 이 455 65 390 520 The Economy of Arkinia S +5 10 40 -20 100 25 55 70 85 Tools I 50 50 50 50 50 50 50 50 50 O Search G 180 180 180 180 180 180 180 180 180 < Prev kriste 10 of 10 X 50 50 50 50 58 50 50 50 50 i SAMSUNG IM 40 50 60 Next 10 20 30 70 80 90 200m Draw a 45° line (labelled Y) and the aggregate expenditure function, labelled AE₁. Identify expenditure equilibrium with the letter e Use the tool "e1" to show the expenditure equilibrium. Plot only the endpoints of Y and AE. Once all points have been plotted, click on the line (not individual points) and a tool icon will pop up. You can use this to enter exact co-ordinates for your points as…
Asap both 1.a) Which of the following statements is correct?l.Expansionary fiscal policy is used to remove a recessionary gap.ll. Expansionary fiscal policy is used to shift AD right.A) l onlyB) I onlyC)both I and ID) neither I nor ll 1.b) Which of the following are examples of contractionary fiscal policy?A) decreasing government expendituresB) increasing taxesC) increasing transfer paymentsD) A and B are both contractionary fiscal policiesE) A, B, and C are all contractionary fiscal policies
1) At an output level of $400 billion, there is an unplanned inventory change of All Numbers are in $ Billion Net Taxes 100 100 100 Output Consumption (Income) Spending 200 100 400 600 800 1,000 300 400 500 600 A) positive $100 billion. B) negative $100 billion. C) negative $200 billion. D) zero. 100 100 Investment Government Spending Spending 200 100 200 100 200 100 200 200 100 100
10. Agreements and disagreements among economists regarding fiscalpolicy Consider a hypothetical economy in which households spend $0.75 of each additional dollar of their after-tax income. The expenditure multiplier for this economy is Suppose that this economy is experiencing a recession. The government would like to stimulate aggregate demand and is deciding whether it should increase its spending by $1 billion or reduce income tax by $1 billion. Assume other things remain constant, and the marginal propensity to consume remains at 0.75. Before any multiplier effect takes place, a $1 billion increase in government spending will increase the aggregate demand by s $1 billion reduction in income tax will increase the aggregate demand by billion, while a billion. Now consider the effect of each fiscal policy after the multiplier effect is complete. A $1 billion increase in government spending will result in a total increase of aggregate demand by $ billion, whereas a $1 billion…
FISCAL POLICY, DEF spending has shifted AD left and now we are at AD • Assume that the economy's full-employment is Q- and we want the government to restore full-employment with stable Py using fiscal tools. It has 3 main options: 1. Increase government spending 2. Reduce taxes 3. Use a combination of the twe Assume that a hypothetical economy with an MPC of 0.8 is experiencing severe recession. 1) By how much would government spending have to increase to shift the aggregate demand curve rightward by $25 billion? How large a tax cut would be needed to achieve this same increase in aggregate demand? Why the difference? 1 Money Multiplier (K) = 1-MPC Total Change in Spending = multiplier × new spending injection
(All data in real $bn). Assume fixed price level, open economy model with government. If equilibrium national income equals 1648 and potential income equals 1783, and simple multiplier is 1.5, which of the following is true? a. there is a recessionary gap of 108.00, and to close it government should increase the net tax rate t. b. there is an inflationary gap of 135.00, and to close it govt can decrease G by 90.00 c. there is an output gap of 135.00, and to close it government can increase G by 202.50 d. there is a recessionary gap of 135.00, to close it goverment can increase G by 90.00 e. there is a recessionary gap of 135.00 to close it goverment can decrease G by 90.00
The government budget is in DEFICIT when OT G-Transfers (TR) - Interest on the Debt (INT) 0 Government expenditures (G) - Investment expenditures (I) 0

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