1. Consider an economy with the initial equilibrium income level of $1000 and the consumption function of C = $150 + 0.6 (Y - T). Find the following quantities: a. Government expenditures at the equilibrium level of income if T = $160 and I = $100. b. The change in income produced by increasing taxes 10%, provided that G and I remain unchanged. What is the tax multiplier? c. The change in income produced by increasing government expenditures 10%, provided that T and I remain unchanged. What is the government spending

1. Consider an economy with the initial equilibrium income level of $1000 and the consumption function of C = $150 + 0.6 (Y - T). Find the following quantities: a. Government expenditures at the equilibrium level of income if T = $160 and I = $100. b. The change in income produced by increasing taxes 10%, provided that G and I remain unchanged. What is the tax multiplier? c. The change in income produced by increasing government expenditures 10%, provided that T and I remain unchanged. What is the government spending

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Question 1 There is a recession gap of $150 billion in the economy. The MPS is 20%. What is the MPC [Select] and the Government Spending Multiplier [Select] Government need to [Select] much [Select] change taxes, would they [Select] the Tax multiplier [Select] [Select] ? Would the spending? By how ? If the Government decided to taxes? What is and by how much
Match the term to its correct definition. Column A 1. 2. 3. 4. 5. 67 8. a tax for which the percentage of income paid in taxes increases as income increases a tax on the value of a property a tax for which the percentage of income paid in taxes remains the same for all income levels a tax for which the percentage of income paid in taxes decreases as income increases a tax on the dollar value of a good or service being sold a tax on the estate, or total value of the money and property, of a person who has died a tax on the production or sale of a good a tax on a person's earnings % 5 Column B a. progressive tax b. estate tax C. property tax d. regressive tax e. income tax f. excise tax g proportional tax h. es tax
can you explain this a little more for me? its a practice quiz. i provided the prof's answer and mild explanation of the correct answer, but I still dont understand it. 13. If government spending is increased by $5, and this increase in spending is financed by a tax increase in the same amount, the effect on equilibrium would be: A). zero – the balance each other out. B) an increase in equilibrium of $10. C) a decrease in equilibrium of $5. D) an increase in equilibrium of $5. This is his answer: 13. d (compare fiscal policy options #1 and #2 shown above and use $5 for both ∆G and ∆Tx;use any MPC, for example .90) i dont understand how to math it. Can you show me how?
1. The multiplier effect of a change in government purchases Consider a hypothetical closed economy in which households spend $0.60 of each additional dollar they earn and save the remaining $0.40. The marginal propensity to consume (MPC) for this economy is 0.6 v , and the expenditure multiplier for this economy is v Suppose the government in this economy decides to increase government purchases by $400 billion. The increase in government purchases will lead to an increase in income, generating an initial change in consumption equal to v. This increases income yet again, causing a second change in consumption equal to The total change in demand resulting from the initial change in government spending is
What is the effect of an increase in taxes when the economy is above full employment? What is the magnitude of the tax multiplier? An increase in taxes when the economy is above full employment _______ aggregate demand and real GDP, and the price level _______. A. increases; falls B. increases; rises C. does not change; does not change D. decreases; falls The magnitude of the tax multiplier is equal to _______. A. MPC times the government expenditure multiplier B. the government expenditure multiplier divided by MPC C. MPC D. the government expenditure multiplier
1) Suppose the figure represents the Laffer Curve for income taxes on high-income earners. If the tax rate on high-income earners is 55% a) marginal tax revenue will increase if tax rates are increased. b) marginal tax revenue is negative. c) the tax rate is optimal. d) marginal tax revenue is positive. 2) Suppose the figure represents the Laffer Curve for income taxes on high-income earners. Which of the following best explains the shape of the Laffer Curve? a) As tax rates rise, individuals work the same amount but conceal more income from tax authorities. b) As tax rates rise, individuals work the same amount and the same amount of income is available to tax. c) As tax rates rise, individuals work more and more income is available to tax. d) As tax rates rise, individuals work less and less income is available to tax
Refer to the photo below. What is the equilibrium level of income for this economy if Y = C + I + G ? a. 240.71 b. 240.86 c. 242.86 d. 242.91 What is the size of the tax multiplier for this economy? a. 2.19 b. 2.29 c. 2.31 d. 2.6
1. The multiplier effect of a change in government purchases Consider a hypothetical closed economy in which households spend $0.80 of each additional dollar they earn and save the remaining $0.20. The marginal propensity to consume (MPC) for this economy is 0.8 Suppose the government in this economy decides to increase government purchases by $400 billion. The increase in government purchases will lead to an increase in income, generating an initial change in consumption equal to $320 billion . This increases income yet again, causing a second change in consumption equal to $256 billion $2 trillion ($2,000 billion) The total change in demand resulting from the initial change in government spending is The following graph shows the aggregate demand curve (AD,) for this economy before the change in government spending. Use the green line (triangle symbol) to plot the new aggregate demand curve (AD₂) after the spending multiplier effect takes place. Hint: Be sure that the new aggregate…
Consider an economy in which the marginal propensity to consume is 0.8 and GDP is currently at 12,000. a) The government wishes to increase GDP to 13,000, and it is considering changing only one of its fiscal tools: 1. government purchases 2. taxes 3. transfer payments How much would the government have to change each of these fiscal policy tools to achieve its goal? (Use the simple spending multiplier for this part and below.) b) Suppose instead that the government wishes to reduce GDP to 10,000, and again, it is considering using only one of its three available fiscal policy tools. How much would it change each of these fiscal tools to achieve its goal?
2. Fiscal policy Suppose a hypothetical economy is currently in a situation of deficient aggregate demand of $64 billion. Four economists agree that expansionary fiscal policy can increase total spending and move the economy out of recession, but they are debating which type of expansionary policy should be used. Economist A believes that the government spending multiplier is 8 and the tax multiplier is 4. Economist B believes that the government spending multiplier is 4 and the tax multiplier is 2. Compute the amount the government would have to increase spending to close the output gap according to each economist's belief. Then, for each scenario, compute the size of the tax cut that would achieve this same effect. Policy Options for Closing Output Gap Increase in Spending Tax Cut (Billions of dollars) Spending Multiplier (Billions of dollars) Tax Multiplier 4 Economist A 8 Economist B 4 2 Economist C favors increases in government spending over tax cuts. This means that Economist C…
- Most economists have reached the following conclusion about supply-side economics. Supply-side tax cuts are likely to reduce income inequality. Supply-side tax cuts are almost certain to lead to smaller budget deficits. Supply-side tax cuts are likely to widen income inequality. None of these.
Suppose the MPC is 34 and the government wants to increase output by $2000. 1. How much should government spending increase? 2. How much should taxes decrease? (You can leave your answer as a fraction) 3. Describe the intuition behind why these two values are different 4. Suppose instead the government wants to decrease output by $ 2000. By how much should they raise taxes?