5. Briefly explain whether you agree or disagree with the following statement: "Real GDPis currently $17.2 trillion, and potential GDP is $17.4 trillion. If the president would liketo increase the government purchases by $200 billion or cut taxes by $200 billion, theeconomy could be brought to equilibrium at potential GDP."6. In 2012, an executive at Honda Motor Company announced that the firm would bemoving more of its car production from Japan to the United States. A newspaper articlestated: "The move, driven by the strength of the Japanese yen, will also result in Hondasignificantly reduce the number of vehicles it imports into North America from plants inJapan."a. What does the article mean by the strength of the Japanese yen?b.Why would a strong yen case Honda to produce more cars in the United States andfewer cars in Japan?FocusAccessibility: Investigateسماء..

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5. Briefly explain whether you agree or disagree with the following statement: "Real GDP is currently $17.2 trillion, and potential GDP is $17.4 trillion. If the president would like to increase the government purchases by $200 billion or cut taxes by $200 billion, the economy could be brought to equilibrium at potential GDP."

5. Briefly explain whether you agree or disagree with the following statement: "Real GDP is currently $17.2 trillion, and potential GDP is $17.4 trillion. If the president would like to increase the government purchases by $200 billion or cut taxes by $200 billion, the economy could be brought to equilibrium at potential GDP."

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that the government allocates $1 billion for new roads. It also raises taxes by $1 billion to keep the deficit from growing. The absolute value of the government purchase multiplier is 3.33 and that of the tax multiplier is 2.33. What is the effect on equilibrium GDP? GDP does not change. ● GDP increases by $ 2.33 billion. GDP increases by $3.33 billion ⒸGDP increases by $1 billion.
1.) If the MPC is 0.8 and taxes increase by $100 billion, what is the effect on equilibrium RGDP? equilibrium RGDP will fall by $80 billion equilibrium RGDP will fall by $125 billion equilibrium RGDP will fall by $400 billion equilibrium RGDP will fall by $500 billion 2.) If equilibrium RGDP is $10000 billion and full employment GDP is $9000 billion, and the MPC = 0.75, what is the appropriate fiscal policy to return the economy to full employment GDP reduce taxes by $250 billion reduce taxes by $333.33 billion raise taxes by $250 billion raise taxes by $333.33 billion
Refer to the table on the next page in answering the questions that follow:a. If full employment in this economy is 130 million, will there be an inflationary expenditure gap or a recessionary expenditure gap? What will be the consequence of this gap? By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the inflationary expenditure gap or the recessionary expenditure gap? Explain. What is the multiplier in this example?b. Will there be an inflationary expenditure gap or a recessionary expenditure gap if the full-employment level of output is $500 billion? Explain the consequences. By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the gap? What is the multiplier in this example? c. Assuming that investment, net exports, and government expenditures do not change with changes in real GDP, what are the sizes of the MPC, the MPS, and the multiplier?
c. Given the original $20 billion level of exports, what would be net exports and the equilibrium GDP if imports were $10 billion greater at each level of GDP? Fill in the gray-shaded cells. Instructions: Enter your answers as a whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. (1) (2) (3) (4) (5) (6) Aggregate Expenditures, Private Closed Aggregate Expenditures, Open Economy, Billions Real Domestic Output (GDP = DI), Billions Exports, Billions Imports, Billions Net Exports, Billions Economy, Billions $350 $390 $20 $40 400 430 20 40 450 470 20 40 500 510 20 40 550 550 20 40 600 590 20 40 650 630 20 40 700 670 20 40 Net exports = $ billion Equilibrium GDP = $ billion d. What is the multiplier in this example?
4. Planned expenditure and income The following table shows consumption (C), investment spending (I), and government purchases (G), in a hypothetical economy for various levels of income. Also assume that there is an income tax rate of 25%, that base consumption is $100 billion, and that the MPC is 0.333, or 1/3. This economy is closed, with no international trade, therefore net exports are equal to zero and should not be considered. Use the given information to fill in disposable income, consumption, and planned expenditures in the following table. Income: Real Disposable (After Tax) Planned GDP Income C I, G Expenditures (Billions of (Billions of dollars) (Billions of (Billions of (Billions of (Billions of dollars) dollars) dollars) dollars) dollars) 100 50 150 100 50 150 200 50 150 300 50 150 400 50 150 500 50 150
5. Fiscal policy, the money market, and aggregate demand Suppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they over. The following graph plots the economy's initial aggregate demand curve (AD1). Suppose now that the government increases its purchases by $2.5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD₂) after the multiplier effect takes pla Hint: Be sure the new aggregate demand curve (AD2) is parallel to AD₁. You can see the slope of AD₁ by selecting it on the following gra (?) PRICE LEVEL 116 114 112 110 108 106 104 102 100 100 12 AD₁ 10 102 104 106 108 110 112 OUTPUT (Billions of dollars) 114 116 Money Supply Į þ The following graph plots equilibrium in the money market at an interest rate of 6% and a quantity of money equal to $15 billion. AD2 Show the impact of the increase in government purchases on the interest rate by shifting one or…
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6. Graphical treatment of taxes and fiscal policy The main difference between variable taxes and fixed taxes is that unlike fixed taxes, variable taxes do not vary with GDP 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. Hint: The new consumption schedule must pass through one point on the left and one point on the right. 50 Consumption with Tax Increase through a Fixed Tax Consumption with Tax Increase through a Variable Tax + 20 40 60 80 100 REAL GDP (Billions of dollars) 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…
QUESTION 6 Refer to the table. If the full-employment real GDP is $100, the: Consumption (after taxes) $-20 Real GDP Government Purchases $15 Gross Investment Net Exports $0 $10 $+5 10 10 +5 15 40 20 10 +5 15 70 40 10 +5 15 60 80 100 inflationary expenditure gap is $30. 100 10 +5 15 130 10 +5 15 160 10 +5 15 inflationary expenditure gap is $10. recessionary expenditure gap is $30. recessionary expenditure gap is $10. O hyper recessionary expenditure gap is $100. O O O C
5. Expenditure Gaps The following graph shows the planned expenditure line (AE) for an economy where current equilibrium income is $400 billion and full-employment income is $650 billion. REAL EXPENDITURE (Billions of dollars) 800 700 600 500 400 300 200 100 0 0 100 45-degree line The economy is experiencing the income gap would require a $ this economy is PE Full-Employment Income 200 300 400 500 600 700 800 INCOME (Billions of dollars) billion PE ? billion. Closing in government spending. Thus the value of the multiplier for with the absolute value of the gap equal to
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?
5. Fiscal policy, the money market, and aggregate demand Consider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The following graph shows the economy's initial aggregate demand curve (AD₁). Suppose the government increases its purchases by $2.5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2) is parallel to AD₁. You can see the slope of AD₁ by selecting it on the following graph. PRICE LEVEL 116 114 112 110 108 106 104 102 100 100 AD. 1 102 104 106 108 110 OUTPUT (Billions of dollars) 112 114 116 þ f AD₂ AD 3 The following graph shows the money market in equilibrium at an interest rate of 3% and a quantity of money equal to $15 billion. Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the…