10. Critical analysis Q11 Marginal tax rates were cut substantially during the 1980s, and although rates were increased in the early 1990s, the marginal rates applicable in the highest income brackets were still well below the top rates of the 1960s and 1970s. decrease Complete the following statement. increase The lower rates of the 1980s and 1990s were for the economy because rate reduction was accompanied by an in revenues derived from the capital gains taxes and personal income taxes collected from high-income taxpayers.

10. Critical analysis Q11 Marginal tax rates were cut substantially during the 1980s, and although rates were increased in the early 1990s, the marginal rates applicable in the highest income brackets were still well below the top rates of the 1960s and 1970s. decrease Complete the following statement. increase The lower rates of the 1980s and 1990s were for the economy because rate reduction was accompanied by an in revenues derived from the capital gains taxes and personal income taxes collected from high-income taxpayers.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question 6 Which of the following economic policies is more Expansionary: O An increase in both government expenditures and taxes. A decrease in both government expenditures and taxes. A decrease in government expenditures accompanied by an increase in taxes. An increase in government expenditures accompanied by a decrease in taxes.
Explain the supply-side effects of fiscal policy on employment and potential GDP
a) What are the three fiscal policy tools and how would each be used to counter a contractionary gap? b) True or False and explain: Fiscal Policy is effective at reducing the duration of an economic contraction. c) True or False and explain: Households always react to tax changes in a predictable manner.
17 The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by increasing government purchases to reduce the burden of this recession. Price Level 160 140 120 100 80 60 40 20 0 (40, 100) Fiscal Policy LRAS प्रै ======= AD₁ billion AS 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) $| Suppose instead that the MPC is 0.5. AD Instructions: Enter your answers as a whole number. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ billion b. If the MPC is 0.6, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? c. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and government purchases need to change by $ billion.
8. Changes in taxes The following graph plots an aggregate demand curve. Using the graph, shift the aggregate demand curve to depict the impact that a tax hike has on the economy. PRICE LEVEL 130 120 110 100 8 90 80 70 0 10 20 30 OUTPUT Aggregate Demand 40 50 60 Aggregate Demand ? Suppose the governments of two very similar economies, economy Y and economy Z, implement a permanent tax cut of equal size. Investment spending in economy Y is more sensitive to changes in the interest rate than investment spending in economy Z. The economies are otherwise completely identical. The tax cut will have a larger impact on aggregate demand in the economy with the
The table below shows hypothectical figures of revenue and spending for the Canadian government. For simplicity, assume that all of the spending grants to other levels of government were spent in Canada on goods and services. REVENUES Personal income taxes Corporate income taxes Other income taxes. GST and excise taxes EI premiums Federal Government's Budget Plan for Fiscal Year ($billion) OUTLAYS $95 36 5 47 13 17 Transfers to persons Spending grants to other levels of government Public debt charges Direct program spending Total Outlays Projected Budget Plan Surplus Other revenues Total Revenues 213 a. The projected NTR in this budget plan is $ b. The value of NTR less government spending on goods and services (G) is $ billion. billion. $42 36 31 100 209 4
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
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Price Level aa- 0 X AS AD₂ AD₁ Z Price Level X AS AD₂ AD' AD₁ YZ Real GDP (Billions) Graph A Real GDP (Billions) Graph B Refer to the diagrams. Suppose that government undertakes fiscal policy designed to increase aggregate demand from AD₁ to AD2 and thereby to increase GDP from X to Z. In terms of graph B, which of the following might explain why GDP increases to Y rather than to Z? decrease in the saving schedule crowding-out effect reduction in tariffs imposed by our trading partners depreciation of the dollar
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Question 2In the basic Keynesian model, fiscal policy should not cause an increase in the public debt. However, in this course you have learnt that most national governments have accumulated public debt by mis-using the Keynesian model. The worst example cited is that of Greece. Explain why governments find it difficult if not impossible to use fiscal policy without accumulating debt. Explain how discretionary fiscal policy is different from automatic stabilizers. Which one is the more likely to cause the debt accumulation problem in part A? Explain why a foreign debt is worse than a domestic debt.