An economy is initially described by the following equations: C - 60 + 0.8(Y-T) I- 120-Sr MIP - Y-25, G= 200 т- 200 M - 3000 P- 3 b. Suppose that a newly elected president cuts taxes by 25 percent. Assuming the money supply is held constant, what are the new cquilibrium interest rate and level of income? What is the tax multiplier? new equilibrium r: new cquilibrium Y: tax multiplier:

An economy is initially described by the following equations: C - 60 + 0.8(Y-T) I- 120-Sr MIP - Y-25, G= 200 т- 200 M - 3000 P- 3 b. Suppose that a newly elected president cuts taxes by 25 percent. Assuming the money supply is held constant, what are the new cquilibrium interest rate and level of income? What is the tax multiplier? new equilibrium r: new cquilibrium Y: tax multiplier:

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

Need help with this. THanks -When Government Spending increases by $10 B Aggregate Demand increases by MORE than $10 B. Which part of Aggregate Demand (C, I, G, or X?) increases so as to make this ripple effect, or multiplied impact, happen?
The task I am struggling with: In each of the following cases, either a recessionary or an inflationary gap exists. Assume that the aggregate supply curve is horizontal, so that the change in real GDP arising from a shift of the aggregate demand curve equals the size of the shift of the curve. Calculate both the change in government purchases of goods and services and the change in government transfers necessary to close the gap. a) Real GDP equals $100 billion, potential output equals $160 billion, and the marginal propensity to consume is 0.75. b) Real GDP equals $250 billion, potential output equals $200 billion, and the marginal propensity to consume is 0.5. c) Real GDP equals $180 billion, potential output equals $100 billion, and the marginal propensity to consume is 0.8 Thank you very much for your help.
An economy is operating with output that is $40 billion below its natural level. And fiscal policy makers want to close this recessionary gap. The central bank agrees to adjust the money supply to hold the interest rate constant so there is no crowding out. the marginal propensity to consume 4/5 and the price level is completely fixed in the short run. In what direction and by how much would government spending need to change to close the recessionary gap? Explain.
Suppose C = 100 + .8 (Y - T). If the government reduces lump sum taxes by $20, which statement is NOT true? 3D a The economy's IS curve will shift to the right by more than the change in taxes. b The economy's IS curve will shift upward. The economy's IS curve will shift horizontally to the right by $80. d The economy's IS curve will shift to the right by $100.
An economy is operating with output that is $40 billion below its natural level, and fiscal policymakers want to close this recessionary gap. The central bank agrees to adjust the money supply to hold the interest rate constant, so there is no crowding out. The marginal propensity to consume is 4/5, and the price level is completely fixed in the short run. In what direction and by how much would government spending need to change to close the recessionary gap? Explain your thinking Please give me answer in daetail please
a) What are the three fiscal policy tools and how would each be used to counter a contractionary gap? b) True or False and explain: Fiscal Policy is effective at reducing the duration of an economic contraction. c) True or False and explain: Households always react to tax changes in a predictable manner.
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 LA 120 100 80 60 40 20 0 Fiscal Policy LRAS AD₁ Real GDP (billions of dollars) billion AS 80 160 240 320 400 480 560 640 720 800 AD O 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 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? Suppose instead that the MPC is 0.75. 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.
What is the effect of an increase in taxes when the economy is above full employment? What is the magnitude of the tax multiplier? An increase in taxes when the economy is above full employment _______ aggregate demand and real GDP, and the price level _______. A. increases; falls B. increases; rises C. does not change; does not change D. decreases; falls The magnitude of the tax multiplier is equal to _______. A. MPC times the government expenditure multiplier B. the government expenditure multiplier divided by MPC C. MPC D. the government expenditure multiplier
Assume that government purchases decrease by $10 billion, with other factors held constant, including the price level. Calculate the change in the level of the real GDP demanded for each of the following values of the MPC. Then, calculate the change if the government, instead if reducing its purchases, increased autonomous net taxes by $10 billion. a. 0.9 b. 0.8 c. 0.75 d. 0.6
In which of the following circumstances is expansionary fiscal p In which of the following circumstances is expansionary fiscal policy more likely to lead to a short-run increase in investment? Explain.a. When the investment accelerator is large or when it is small?b. When the interest sensitivity of investment is large or when it is small?
Price Level aa- 0 X AS AD₂ AD₁ Z Price Level X AS AD₂ AD' AD₁ YZ Real GDP (Billions) Graph A Real GDP (Billions) Graph B Refer to the diagrams. Suppose that government undertakes fiscal policy designed to increase aggregate demand from AD₁ to AD2 and thereby to increase GDP from X to Z. In terms of graph B, which of the following might explain why GDP increases to Y rather than to Z? decrease in the saving schedule crowding-out effect reduction in tariffs imposed by our trading partners depreciation of the dollar
Expansionary fiscal policy will most likely result in B E a decrease in the money supply an increase in the marginal propensity to consume an increase in nominal interest rates a decrease in the level of output a decrease in the price level