Answered: 1. If the marginal propensity to…

1. If the marginal propensity to consume is 0.8 in an economy, a $20 billion rise in Incomes will do what to GDP? (Tell if it will increase or decrease GDP, and by how much.)

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter18: Debates In Macroeconomics Over The Role And Effects Of Government

Section: Chapter Questions

Problem 1WNG

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A: Answer to the three sub parts are as follows:

Question

1. If the marginal propensity to consume is 0.8 in an economy, a $20 billion rise in Incomes will do what to GDP? (Tell if it will increase or decrease GDP, and by how much.)

2. Suppose that the level of government spending increased by $100 billion where the marginal propensity to consume is 0.5. Aggregate expenditures must have increased by:

3. The Government has a $.8 Trillion Growth target. What fiscal policy should they implement if MPS = .2?

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4. Assume the government cuts taxes and the marginal propensity to save is 0.4. a. Would this be considered expansionary fiscal policy or contractionary fiscal policy? b. If the tax cut was $1 billion, what would be the effect on real GDP? (Show your work.)
4. Fiscal policy affects aggregate demand because: government spending is a category of aggregate demand. taxes affect corporate spending and so investment. taxes affect disposable income and so consumption. all of the above.
1. Why is a $100 billion increase in government spending on goods and services more expansionary than a $100 billion decrease in taxes?
Use the following equations for exercises 16–18. C= $100+.8Y I= $200 G= $250 X = $100.2Y
4. In the US the unemployment rate for January 2000 was 4.0%. In January 2000, the US had GDP of $10.04 trillion, while potential GDP for the same year was $9.47 trillion. Assume the marginal propensity to consume is 0.93. a. What is the GDP gap in January 2000? b. Using the concept of the spending multiplier, in theory, how much would government spending have to change to close the gap? c. Using the concept of the tax multiplier, in theory, how much would taxes have to change to close the gap?
2. Considering the recent pandemic situation, Consumers fear a recession, they start reducing consumption. How can the government counteract (what policy government can consider)? What are the shortcomings of such a policy (fiscal)? Explain one of them. Use a graph to illustrate your arguments.
Answer exercises 11-14 on the basis of the following information. Assume that equilibrium real GDP is $800 billion, potential real GDP is $950 billion, the MPC is .80, and the MPI is .40.
1. The Multiplier and Fiscal Policy: one of the programs to combat the economic effects of the recession and pandemic was the CARES Act passed in March 2020. One of the provisions of the CARES act was a relief check of $1200 per adult and $500 per dependent child. These payments were actually advance rebates on 2020 taxes and so the payments came from the IRS. This tax cut distributed about $300 billion to most, but not all of the U.S. population. Major exceptions included families with undocumented members (which invalidated the whole family, even those who were legal residents or U.S. citizens), dependent adults (which invalidated many college students as well as seniors living with their children). The program was phased out for individuals making more than $75,000 and married couples earning more than $150,000. Which of the following statements is correct about the multiplier effect of this part of the CARES act? Group of answer choices The multiplier effect would be greater than…
Give typing answer with explanation and conclusion Suppose that the typical Canadian spends 80 percent of their income. There is an income tax rate is 15% per period. If the government wanted to see the effect of a tax cut of $50 billion, what would be the tax multiplier that they would have to use.
Please answer the following questions:
2. Fill in the blank in the following statement. (Show your caleculations). If government spending is increased by $500, taxes are reduced by $200, and the MPS is 0.2, equilibrium output will change by....
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