I need all parts answered and explained, thank you. This is practice, for my own under Consider the following behavioral equations:C=co + C₁YDT=to+t₁YYD=Y-TG and I are both constant. Assume that t₁is between 0 and 1.a. Solve for equilibrium output.b. What is the multiplier? Does the economy respond more to changes in autonomous spendingwhen t₁ is 0 or when t₁ is positive? Explain.c. Why is fiscal policy in this case called an automatic stabilizer?

Given:C=c0+c1YD (Consumption function)T=t0+t1Y (Tax function)YD=Y−T (Disposable income)Where:G and I…

Answered: Consider the following behavioral…

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter18: Debates In Macroeconomics Over The Role And Effects Of Government

Section: Chapter Questions

Problem 5QP

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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) If the spending multiplier is 2.5 and the economy is in a $500 billion contractionary gap, how much should I increase government purchases to eliminate the gap? d) Continuing with c, if the MPC is 0.8, how much would I need to increase transfer payments to eliminate the $500 billion contractionary gap? e) True or False and explain: Households always react to tax changes in a predictable manner. Module 6: Deficits and the Debt. a) Distinguish between deficit and debt. b) Explain what crowding out is and why it reduces the impact of fiscal stimulus. c) True or false and explain: The national debt represents a threat of bankruptcy. (For d and e) Suppose the interest on the debt was $600 billion. If interest is paid domestically, 90% will be spent domestically (the remainder is…
Consider the following behavioral equations: C =c, +c,Y» T=1, + 1,Y Y, = Y –T G and I are both constant. Assume that 4, is between 0 and 1. a. Solve for equilibrium output. b. What is the multiplier? Does the economy respond more to changes in autonomous spending when 1, is 0 or when 1, is positive? Briefly explain. c. Why is fiscal policy in this case called an automatic stabilizer?
1. Automatic stabilizers In Chapter 3, we have assumed that the fiscal policy variables G and T are independent of the level of income. In the real world, however, this is not the case. Taxes typically depend on the level of income and so tend to be higher when income is higher. In this problem, we examine how this automatic response of taxes can help reduce the impact of changes in autonomous spending on output. Consider the following behavioral equations: C =c, +c,Y, T = 1, + 1,Y Y, = Y -T G and I are both constant. Assume that 1, is between 0 and 1. a. Solve for equilibrium output. b. What is the multiplier? Does the economy respond more to changes in autonomous spending when 1, is 0 or when 1, is positive? Briefly explain. c. Why is fiscal policy in this case called an automatic stabilizer?
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.
Suppose the government, in an effort to avoid an increase in the deficit, votes for a budget neutral tax cut policy. Assume the marginal propensity to consume (MPC) is equal to 0.75 and taxes are cut by $15 billion. Round answers to the nearest billion, and specify decreases as a negative number. By how much will government spending change? change in government spending: $ What is the resulting change in the equilibrium level of real GDP? change in equilibrium level of real GDP: $ billion billion
Solve all questions compulsory......
Explain how the implementation of this policy is related to the simple spending multiplier. Explain how the fiscal policy could solve the problem of unemployment.
Which of the following could NOT be contractionary fiscal policy tool? OA) decreasing government expenditure OB)decreasing taxes Oc) decreasing transfer payments
Solve it steps by steps explanation handwriting all
Macmillan Learning . Suppose the government, in an effort to avoid an increase in the deficit, votes for a budget neutral tax cut policy. Assume the marginal propensity to consume (MPC) is equal to 0.75 and taxes are cut by $15 billion. Round answers to the nearest billion, and specify decreases as a negative number. By how much will government spending change? change in government spending: S What is the resulting change in the equilibrium level of real GDP? change in equilibrium level of real GDP: $ billion billion
which of the following individuals would most likely favor an increase in government spending, as opposed to a tax cut, as the basis for expansionary fiscal policy? a. the family that takes and cerise, air conditioned, power-steed, power brakedautomobile through cities that are badly paved made hidious by litter-JK Galbraith b. the bastards [ read politicans] can't spend what they don't have-howard jarvis c. there must be cobstant philoshical prejudice against intervention by the state into our lives, for by defination such intervention abridge liberty -William Simone d. public expenditure are made for the primary benefits of the middle class and financed with taxes on the poor and rich-director's law
Which of the following is not an automatic stabilizer? A. Unemployment compensation. B. Defense spending. C. Progressive income tax rates (that is, higher marginal tax rates that rise with income). D. All of the answers are automatic stabilizers

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