3. Suppose an economy had aggregate demand components with the following relationships:Consumption Spending, C-140 +0.60*(DY)Investment Spending, I-25 +0.15"YGovernment Spending, G-0Net Export Spending, X=0Tax Collections, Tx = 0a. What is the equilibrium income for this economy (Show your work)?b. If the Government decided to Increase G spending by 6, what would be the new equilibriumincome for this economy (Show your work)?Page 2bed tooingc. If instead the Government decided to Reduce Tx (taxes) by 10 (i.e., send checks to people), whatwould be the new equilibrium income for this economy (Show your work)?d. If instead the Government decided to Increase G spending and Increase Tx (taxes) by 20, whatwould be the new equilibrium income for this economy (Show your work)?

a. The computation of equilibrium income:Using the provided equations for consumption spending,…

Answered: 3. Suppose an economy had aggregate…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Questions:4. what is the government's current budget balance?billions of dollars
TOPIC: Deriving and exploring the total expenditures curve
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.
6. Graphical treatment of taxes and fiscal policy The main difference between variable taxes and fixed taxes is that unlike fixed taxes, variable taxes The following graph shows the consumption schedule for an economy with a given level of taxes. Suppose the government implements a tax increase through a fixed tax. Use two green points (triangle symbol) to connect the two black points (plus symbols) representing the consumption schedule after the change in taxes. Hint: The new consumption schedule must pass through one point on the left and one point on the right. REAL CONSUMER SPENDING (Billions of dollars) 8 40 30 8 0 + + + O + ++ 20 40 60 REAL GDP (Billions of dollars) 80 + O + 100 Consumption with Tax Increase through a Fixed Tax Consumption with Tax Increase through a Variable Tax The blue line on the next graph represents the original total expenditure line for this economy before the change in tax structure. Use the new consumption line you just plotted to calculate the new…
Figure 8-24. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. 9 Tax Revenue a∞rontm ~ - X 8 7 6 5 4 3 2 1 A B Refer to Figure 8-24. Tax revenue would [I B. All of the above are correct. A. decrease if the economy began at point C and then the tax rate was increased. Answer Key:B Tax Size OC. decrease if the economy began at point B and then the tax rate was decreased. D. increase if the economy began at point F and then the tax rate was decreased.
9
The following table provides some information on government spending (G) and tax revenues (T) at different levels of real GDP in a hypothetical economy. Note: Throughout this problem you can assume, for simplicity, that government transfers are zero. Real GDP (Billions of dollars) 460 GOVERNMENT SPENDING AND TAXES (Billions of dollars) 80 78 76 74 Use the blue line (circle symbols) to plot the government spending schedule presented in the table. Then use the orange line (square symbols) to plot the economy's tax revenues schedule. 72 70 68 → 68 64 62 + 60 500 540 400 420 Government Spending (G) (Billions of dollars) 72 440 72 72 460 480 500 520 540 REAL GDP (Billions of dollars) 560 Tax Revenues (T) (Billions of dollars) 70 580 72 74 600 404-8141 Deficits Surpluses ?
What is the difference between tax cuts imposed on higher-income households compared with lower- and middle-income households? Discuss the implications for the multiplier and the effectiveness of the tax cuts for boosting GDP.
Economics
Given the following model of an Economy as follows:- (10 marks) C = 50 + 0.7 Yd (Yd = Y-T) (Consumption & Expend) I = 100 (Investment Expend) X = 20 (Exports ) M = 10 – 0.27 (Imports) T=25 interepret the consumption Function i) Determine Equilibrium level of National Income ii) Consumption level at Equilibrium level of Income iii) Total import at equilibrium Income
Homework: Demand-Side Equilibrium: Unemployment or Inflation? The following graph shows the total expenditure line (TE) for an economy where current equilibrium output is $400 billion and potential output is $650 billion. REAL EXPENDITURE (Billions of dollars) § 2 600 500 400 300 200 100 0 0 100 45-degree ling 200 300 400 500 600 REAL GDP (Bilions of dollars) The economy is experiencing TE Potential GDP 700 800 TE equal to $ by billion. Thus, the value of the multiplier for this economy is billion. To close the output gap, government purchases could On the previous graph, shift the TE line to show the change in total expenditure necessary to close the output gap. Note: Select and drag the curve to the desired position. The curve will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther.
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