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15. Suppose the MPC is .90 and the MPI is .10. If govern- ment expenditures go up $100 billion while taxes fall

15. Suppose the MPC is .90 and the MPI is .10. If govern- ment expenditures go up $100 billion while taxes fall

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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Chapter 11 Fiscal Policy 247 8 Why do government budget deficits grow during recessions? . Taxes can be progressive, regressive, or proportional. Define each, and briefly offer an argument for why income taxes are usually progressive. 10. What is a value-added tax (VAT), and what is an advantage of such a tax relative to an income tax? The following exercises are based on the $10 billion, what happens to the equilibrium level of real GDP? Use the following equations for exercises 16-18. C = $100 +.8Y I = $200 G = $250 Appendix to this chapter. 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. 11. What is the size of the GDP gap? 12. How much must government spending increase to eliminate the GDP gap? 13. How much must taxes fall to eliminate the GDP gap? 14. If government spending and taxes both change by the same amount, how much must they change to eliminate the recessionary gap? 15. Suppose the MPC is .90 and the MPI is .10. If govern- ment expenditures go up $100 billion while taxes fall X = $100 2Y 16. What is the equilibrium level of real GDP? 17. What is the new equilibrium level of real GDP if government spending increases by $150? 18. What is the new equilibrium level of real GDP if government spending and taxes both increase by $150? 19. Make a graph showing the spending and tax revenue of your state government for as many years as you can find (use the government of your home country if you are not from the United States). What trends do you notice? What spending categories make up the largest share of the state budget? What are the largest sources of revenue?
Transcribed Image Text:Chapter 11 Fiscal Policy 247 8 Why do government budget deficits grow during recessions? . Taxes can be progressive, regressive, or proportional. Define each, and briefly offer an argument for why income taxes are usually progressive. 10. What is a value-added tax (VAT), and what is an advantage of such a tax relative to an income tax? The following exercises are based on the $10 billion, what happens to the equilibrium level of real GDP? Use the following equations for exercises 16-18. C = $100 +.8Y I = $200 G = $250 Appendix to this chapter. 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. 11. What is the size of the GDP gap? 12. How much must government spending increase to eliminate the GDP gap? 13. How much must taxes fall to eliminate the GDP gap? 14. If government spending and taxes both change by the same amount, how much must they change to eliminate the recessionary gap? 15. Suppose the MPC is .90 and the MPI is .10. If govern- ment expenditures go up $100 billion while taxes fall X = $100 2Y 16. What is the equilibrium level of real GDP? 17. What is the new equilibrium level of real GDP if government spending increases by $150? 18. What is the new equilibrium level of real GDP if government spending and taxes both increase by $150? 19. Make a graph showing the spending and tax revenue of your state government for as many years as you can find (use the government of your home country if you are not from the United States). What trends do you notice? What spending categories make up the largest share of the state budget? What are the largest sources of revenue?
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