G H. K GDP 7. Explain how the above graph illustrates the built-in stability of a progressive tax structure. The graph illustrates, when GDP expands, tax revenues ( increase, decrease ) which (increases, reduces ) aggregate demand (AD). When GDP declines, net taxes are ( positive, negative ), then, which will (add to, subtract from) aggregate demand. If the full-employment GDP for the above economy is at J, the cyclically-adjusted budget will have a ( surplus, deficit), and if it is at L, the cyclically-adjusted budget will have a ( surplus, deficit). The degree of built-in stability in the above economy could be increased by changing the tax system so that the tax line has a (higher, lower ) slope. Government purchase (G) and tax revenues (T)

G H. K GDP 7. Explain how the above graph illustrates the built-in stability of a progressive tax structure. The graph illustrates, when GDP expands, tax revenues ( increase, decrease ) which (increases, reduces ) aggregate demand (AD). When GDP declines, net taxes are ( positive, negative ), then, which will (add to, subtract from) aggregate demand. If the full-employment GDP for the above economy is at J, the cyclically-adjusted budget will have a ( surplus, deficit), and if it is at L, the cyclically-adjusted budget will have a ( surplus, deficit). The degree of built-in stability in the above economy could be increased by changing the tax system so that the tax line has a (higher, lower ) slope. Government purchase (G) and tax revenues (T)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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5. If an economy has a recessionary expenditure gap, the government could attempt to bring the economy back toward the full-employment level of GDP by taxes or government expenditures.
If the equilibrium real GDP were higher than potential GDP, then a contractionary fiscal policy would cause the inflation rate to be ________ and real GDP to be ________. a. higher; higher b. higher; lower c. lower; higher d. lower; lower
10 If Ricardian equivalence holds, and the marginal propensity to consume (MPC) is 0.75, What is the effect of a $100 reduction in taxes on aggregate demand (AD) ?
If Congress wanted to help the economy out of a recession, they would be most likely to: check all that apply increase interest rates reduce government spending O increase transfer payments O decrease taxes
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.
Automatic stabilizers are increases in spending and reductions in taxes that__ ?which one? a.Are enacted by Congress when the economy enters in a recession b.Are the result of existing tax and revenue spending rules c.Are required by the Department of Treasury as needed d.Are enacted by the President when the economy enters in a recession
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.
Prompt: Read “YOU’RE THE ECONOMIST: The Laffer Curve” in Chapter 21. After reading the case, compare the common perception of how a tax rate cut affects tax revenues with economist Laffer's theory.
Briefly explain....
Most economists argue that we should not strive to balance the budget on an annual basis and prefer to look at the structural budget. Some point out Hoover’s tax folly to emphasize their point. Explain what they are talking about.
QUESTION 3 Give a hypothetical numerical example to show the relationship between the marginal propensity to consume (MPC) and the multiplier (m)? a. b. Considering both the simple Keynesian and the aggregate demand-supply frameworks, if households as a group experience a decrease in wealth at a given price level, what happen to Total Expenditure (TE), Aggreggate Demand (AD) and Real GDP. Illustrate and explain the change using a suitable graph.