3. The balanced budget multiplierFor both political and macroeconomic reasons, governments are often reluctant to runbudget deficits. Here, we examine whether policy changes in G and T thatmaintain a balanced budget are macro economically neutral. Put another way, weexamine whether it is possible to affect output through changes in G and T so thatthe government budget remains balanced.Start from equation (3.8):Y=k, +i+G-c7]1-Ga. When G increases by one unit, Y increases by,b. When T increases by one unit, Y increases bySuppose that the economy starts with a balanced budget: G =T. Suppose that GandT increase by one unit each. Using your answers to (a) and (b), the change in. Is balanced budget changes in G and TmacroeconomicallyY equals_neutral? (yes or no)

Given; Income equation:- Y=11-c1c0+I+G-c1T a) When G increases by one…

Answered: 3. The balanced budget multiplier For…

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

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.
20)Using the short-hand symbols G, Y, Md, r and I to demonstrate the effects of an expansionary fiscal policy.
Thanks!
7. Which of the following is true about the annual budget prepared by the Government? * It is a part of the fiscal policy of the government O It is a part of the money-saving policy of the government O It is a part of the commercial policy of the government It is a part of the monetary policy of the government TOSHIBA
Suppose that for every 1 percentage point increase (decrease) in GDP growth, automatic stabilizers (i) increase (decrease) tax revenues revenues by $90 billion and (ii) decrease (increase) transfer payments by $30 billion. Using this information, complete the table.
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
Please Read the Following Paragraph and Answer the Following Questions Oman’s government will finance most of its budget shortfall in 2021 by borrowing to plug a fiscal gap battered by a decline in oil prices and the coronavirus pandemic. The Persian Gulf state is looking into borrowing that will cover 73%, or 1.6 billion rials ($4.2 billion), of the country's 2.2 billion-rial shortfall, with the remaining 600 million rials to be drawn from its reserves, according to a post on Twitter by the state-run Oman News Agency on Friday. The government based its 2021 budget plan on an oil price of $45 per barrel. Other highlights from Oman’s 2021 budget: • Expenditure is set to fall to 10.8 billion rials, a 14% drop from the previous year. • 2021 revenue is set to fall to 8.6 billion rials, a 19% decline. • Budget deficit at 8% of gross domestic product in 2021, 2.2 billion rials. Oman has taken measures such as reduced spending and plans to impose a 5% value-added tax in 2021.…
Consider an economy described by the following equations. Y=C+I+G C=100+.75(Y−T) I=500−50r G=125 T=100 Where: Y is GDP, C is consumption, I is investment, G is government spending, T is taxes and r is the rate of interest. Question: 1. Assuming that no change in fiscal policy, what is the effect of a reduction in interest rate from 4 percent to 3 percent on equilibrium output? 2. Suppose the Central Bank policy is to adjust the money supply to maintain the interest rate at 4 percent, so r=4. What is the value of output?
C = 480 + 0.5YDI = 110T = 70G = 250 a. Calculate the private savings, public savings, and investment spending.b. Calculate the multiplier and explain how it affects equilibrium output.c. Suppose that the government decides to increase its spending from €250 billion to €300 billion. Find the equilibriumoutput, consumption, and disposable income. Why wouldthe government decide to expand fiscal spending?
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.
Describe how a budget deficit arises and explain the corresponding action typically taken by a government in this type of circumstance. Discuss the major categories that the U.S. government spends its tax revenue on and indicate what percentage of tax revenue is spent on these categories on an annual basis. please answer shortly
Answer the questions below for the economy of Makala, using the following graph: a) If GDP in Makala is $300, what is the government's budget balance? b) If government spending is increased by the size of the deficit, and the multiplier is 2.5, what is the new level of equilibrium GDP? c) What is the size of the government's deficit at this new level of equilibrium GDP?

Recommended textbooks for you

ENGR.ECONOMIC ANALYSIS

Economics

ISBN:

9780190931919

Author:

NEWNAN

Publisher:

Oxford University Press

Principles of Economics (12th Edition)

Economics

ISBN:

9780134078779

Author:

Karl E. Case, Ray C. Fair, Sharon E. Oster

Publisher:

PEARSON

Engineering Economy (17th Edition)

Economics

ISBN:

9780134870069

Author:

William G. Sullivan, Elin M. Wicks, C. Patrick Koelling

Publisher:

PEARSON

ENGR.ECONOMIC ANALYSIS

Economics

ISBN:

9780190931919

Author:

NEWNAN

Publisher:

Oxford University Press

Principles of Economics (12th Edition)

Economics

ISBN:

9780134078779

Author:

Karl E. Case, Ray C. Fair, Sharon E. Oster

Publisher:

PEARSON

Engineering Economy (17th Edition)

Economics

ISBN:

9780134870069

Author:

William G. Sullivan, Elin M. Wicks, C. Patrick Koelling

Publisher:

PEARSON

Principles of Economics (MindTap Course List)

Economics

ISBN:

9781305585126

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

Managerial Economics: A Problem Solving Approach

Economics

ISBN:

9781337106665

Author:

Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:

Cengage Learning

Managerial Economics & Business Strategy (Mcgraw-…

Economics

ISBN:

9781259290619

Author:

Michael Baye, Jeff Prince

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS