Answered: 6. Graphically illustrate the effect of…

6. Graphically illustrate the effect of an increase in government purchases. Explain the government spending multiplier effect by using at least 200 words.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Q: When the MPC increases: a. the government spending multiplier stays the same b. the government…

A: The marginal propensity to consume refers to that portion of the increased income that was spent by…

Q: uppose there is some hypothetical closed economy in which households spend $0.80 of each additional…

A: Marginal propensity to consume measures the change in consumption spending due to change in income.…

Q: What is true about the balanced budget multiplier? A. The balanced budget multiplier is positive…

A: The balanced budget multiplier is the budget situation where the spending of the government and the…

Q: 3. Suppose the MPC is 0.8. The government wants to decrease Total Spending by $600. How should it…

A: GIVEN MPC = 0.8 decrease in Total spending = $600 (ie. ΔAD) Change in G to achieve (ΔAD=$600)…

Q: 2. Assume the MPC is 0.75 and policymakers have targeted real GDP to decrease by $300billion. By how…

A: To find out how much taxes must be increased to achieve the goal of decreasing real GDP by $300…

Q: investment

A: Investment, inside the context of economics, refers to the acquisition or acquisition of products…

Q: Consider an economy with the following situation: C = 50 +0.8 YdI =100;T = 100 G =150 a. Solve for…

A: Aggregate expenditure is the sum of consumption, investment and government purchases. AE = C + I +…

Q: Given this diagram, what is the numerical value of the autonomous spending simple multiplier? 8.…

A: The following graph is provided:The curves/lines depict the following parameters:C = ConsumptionI =…

Q: Explain the effect of foreign repercussions on the value of the spending multiplier.

A: Hello. Since your question has multiple parts, we will solve the first question for you. If you want…

Q: If consumption is C=100+0.75Yd Taxes is T=50+0.5Y Export is X=200 Import is M=50+0.25Y…

A: The solution you've provided is incorrect. Export is autonomous and not dependent on output (Y).…

Q: Suppose the households in a hypothetical economy has the following consumption function C = a +cYd…

A: consumption is the function of disposable income where marginal propensity to consumer is the slope…

Q: None

A: The marginal propensity to consume (MPC) for this economy is 0.75, and the spending multiplier for…

Q: 4. If the Government Spending Multiplier is 3, the value of the Tax Multiplier is 5. If taxes…

A: The Government Spending multiplier is the change in equilibrium income due to one unit change in…

Q: 15. If government's spending increases by 60 and marginal propensity to consume is 0.8, how will the…

A: Given information: Government spending increases by 60 i.e., Change in government spending = 60 and…

Q: 4. Given this diagram; what is the equilibrium level of income? 5. Given this diagram; what is the…

A: Aggregate expenditure is the sum total of expenditures. Aggregate expenditure is the sum of…

Q: The marginal propensity to consume (MPC) for this economy is , and the spending multiplier for this…

A: The spending multiplier estimates the rate at which total spending will change in answer to an…

Q: 2. If a $580 billion initial increase in spending leads to a $10850 billion change in real GDP. how…

A: In monetary perspectives, a money multiplier is one of various immovably related extents of business…

Q: 8. Given each of the following values for both the spending multiplier and the tax multiplier,…

A: We're given different values for both the spending multiplier (SM) and the tax multiplier (TM), and…

Q: 10. Crowding out effect Suppose economists observe that an increase in government spending of $9…

A: Marginal propensity to consume refers to change in consumption divided by change in income.

Q: 3. A fall in the income tax rate will O lower the multiplier and lower equilibrium income. O raise…

A: Macroeconomics is a part of economics that deals with production, decision and allocation concerning…

Q: Suppose the government enacts a stimulus program composed of $500 billion of new government…

A: Increase in GDP (IGDP) can be calculated as follows. Increasing GDP is 800 billion.

Q: Answer the next four questions based on the following diagn C+I+G 200 1600 Show all your work Based…

A: Given the data from the above graph we have, Autonomous consumption(a)= 200National income or GDP…

Q: Figure S-23. The figure represents the relationship between the size of a tax and the tax revenue…

A: Laffer curve refers to the curve that depicts the relationship between the tax revenue of the…

Q: 10. Crowding out effect Suppose economists observe that an increase in government spending of $13…

A: given: Increase in government spending: 13 billionincrease in total demand for goods and services:…

Q: Why does a reduction in taxes have a smaller multiplier effect than an increase in government…

A: In an economy, tax multiplier differs from spending multiplier because they influence an…

Q: Derive multiplier for a change in the government purchase and the taxes. Why is the tax multiplier…

A: Government multiplier is the ratio of change in income and change in government expenditure. Whereas…

Q: 3. The spending multiplier effect Consider a hypothetical economy. Households spend $0.50 of each…

A: Households spend $0.50 of each additional dollar they earn It means MPC is 0.50…

Q: 6. The multiplier effect Consider a hypothetical economy where there are no taxes and no foreign…

A: Marginal propensity to save measures the magnitude of change in the savings due to the change in…

Q: 7. Problems and Applications Q7 Suppose economists observe that an increase in government spending…

A: The MPC refers to the marginal propensity to consume. MPC measures changes in consumption in…

Q: 14. If MPC is 0.6 and government spending increases by 350, how much does gross domestic product…

A: The marginal propensity to consume (MPC) is described as the percentage of an increase in pay that a…

Q: 2. The multiplier effect of a change in government purchases Consider a hypothetical closed economy…

A: The hypothetical economy is a closed economy.Household spending Household saving Government…

Q: 1. Calculate the value of the multiplier 2. Calculate the equilibrium leve of income

A: The multiplier depends on the marginal propensity to consume (MPC). The higher the value of MPC, the…

Q: Hint: Be sure that the new aggregate demand curve (AD,) is parallel to the initial aggregate demand…

A: The marginal propensity to consume is the proportion of disposable income that a person chooses to…

Q: Use the following table to compute four rounds of the spending multiplier effect. Round Components…

A: Formula: Multiplier = 1 /( 1-MPC) Calculate multiplier as follows: Multiplier = 1 /( 1-MPC) =…

Q: Government purchases and income taxes will have the same effect on the multiplier. O True O False

A: The multiplier effect is the phenomenon by which an initial injection of spending, such as…

Q: arginal propensity to consume

A: The Marginal Propensity to Consume (MPC) is an idea in economics that represents the proportion of a…

Q: Use the new consumption line you just plotted to calculate the new total expenditure at two levels…

A: Economics is a branch of social science that describes and analyzes the behaviors and decisions…

Q: 30 Assume the economy is in a recession. Understanding the economic theory of John Maynard Keynes,…

A: When talking about multiplier impact of change in government spending or aggregate demand on the…

Q: 7. Algebraically derive the government spending and tax multiplier for the case in which tax…

A: Government spending multiplier: At equilibrium, AD = AS Y = C + I + G + NX C = C0 + MPC(Y — T) C0 =…

Q: The following graph shows the aggregate demand curve ( AD1) for this economy before the change in…

Q: Mathematically derive the formula of tax multiplier and interpret it. Does it depend upon marginal…

A: Tax multiplier refers to the concept where the taxes are considered to be affecting the income,…

Q: Assume that initially G is $300 and equilibrium real GDP is $5000. If the multiplier is 5, what…

A: The ‘multiplier effect’ means an increase in the final income from any new method of spending. The…

Question

6. Graphically illustrate the effect of an increase in government purchases. Explain the government spending
multiplier effect by using at least 200 words.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Step by step

Solved in 3 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Question 1 There is a recession gap of $150 billion in the economy. The MPS is 20%. What is the MPC [Select] and the Government Spending Multiplier [Select] Government need to [Select] much [Select] change taxes, would they [Select] the Tax multiplier [Select] [Select] ? Would the spending? By how ? If the Government decided to taxes? What is and by how much
can you explain this a little more for me? its a practice quiz. i provided the prof's answer and mild explanation of the correct answer, but I still dont understand it. 13. If government spending is increased by $5, and this increase in spending is financed by a tax increase in the same amount, the effect on equilibrium would be: A). zero – the balance each other out. B) an increase in equilibrium of $10. C) a decrease in equilibrium of $5. D) an increase in equilibrium of $5. This is his answer: 13. d (compare fiscal policy options #1 and #2 shown above and use $5 for both ∆G and ∆Tx;use any MPC, for example .90) i dont understand how to math it. Can you show me how?
1. The government expenditure multiplier is the effect of a change in government expenditure (G) on goods and services: a. An increase in aggregate expenditure increases aggregate demand (AD), which increases real GDP, which induces an increase in consumption expenditure (C), and which further increases aggregate demand (AD). b. An increase in aggregate expenditure increases aggregate supply (AS), which increases real GDP, which induces an increase in consumption expenditure (C), and which further increases aggregate supply (AS). c. An increase in aggregate expenditure decreases aggregate demand (AD), which decreases real GDP, which induces an decrease in consumption expenditure (C), and which further decreases aggregate demand (AD). d. An increase in aggregate expenditure decreases aggregate supply (AS), which decreases real GDP, which induces an decrease in consumption expenditure (C), and which further decreases aggregate supply (AS). 2. How do banks create money? Group of…
Aggregate expenditure (billions of 2007 dollars) 375 347 150 100 10 0 100 200 45° line AE C 300 375 Real GDP (billions of 2007 dollars) 6. Using the graph above, assume there are no taxes in this economy. Answer the following questions: a. MPC = b. MPM = C. MP to Spend = =Z= d. AE Function = e. Multiplier = f. Equilibrium level of Real GDP is
There is a tax-cut that increases your Disposable Income by $3,400, which you intend to save $510. a. Calculate the MPC. b. Interpret this MPC. (What does it mean? Define MPC and describe in this context.)c. What is the resulting fiscal multiplier? d. Interpret the multiplier and describe the multiplier effect. e. Find the total change to the economy from this tax change.
2. Assume a given economy has an equilibrium GDP of $360 billion. A. If government spending and taxes both increase by $40 billion, determine the new equilibrium GDP. B. If both G and taxes increase by $40 billion, what impact will these two changes happening at the same time have on the budget? In other words, will these two changes cause a surplus, a deficit, or a balanced budget? C. Solve for the numerical value of the balanced budget multiplier.
4. The multiplier effect of a change in government purchases Suppose there is some hypothetical closed economy in which households spend $0.80 of each additional dollar they earn and save the remaining $0.20. The marginal propensity to consume (MPC) for this economy is 0.8, and the spending multiplier for this economy is 5. Suppose the government in this economy decides to decrease government purchases by $400 billion. The decrease in government spending will lead to a decrease in income, creating an initial change in consumption equal to -$2,000 billion. This decreases income yet again, leading to a second change in consumption equal to The total change in demand resulting from the initial change in government spending is The following graph shows the aggregate demand curve (AD) for this economy before the change in government spending. Use the green line (triangle symbol) to plot the new aggregate demand curve (AD₂) after the multiplier effect takes place. For simplicity, assume that…
2. Fiscal policy Suppose a hypothetical economy is currently in a situation of deficient aggregate demand of $64 billion. Four economists agree that expansionary fiscal policy can increase total spending and move the economy out of recession, but they are debating which type of expansionary policy should be used. Economist A believes that the government spending multiplier is 8 and the tax multiplier is 4. Economist B believes that the government spending multiplier is 4 and the tax multiplier is 2. Compute the amount the government would have to increase spending to close the output gap according to each economist's belief. Then, for each scenario, compute the size of the tax cut that would achieve this same effect. Policy Options for Closing Output Gap Increase in Spending Tax Cut (Billions of dollars) Spending Multiplier (Billions of dollars) Tax Multiplier 4 Economist A 8 Economist B 4 2 Economist C favors increases in government spending over tax cuts. This means that Economist C…
3. What will happen to the size of the expenditure multiplier and the size of the tax multiplier when the marginal propensity to save (MPS) increases?
3
2. Considering the recent pandemic situation, Consumers fear a recession, they start reducing consumption. How can the government counteract (what policy government can consider)? What are the shortcomings of such a policy (fiscal)? Explain one of them. Use a graph to illustrate your arguments.
13-15