In each case below a particular fiscal policy affects an economy's AD curve via the spending multiplier. Calculate the spending multiplier and find the direction and size of the shift in the AD curve. Enter your responses for the spending multiplier rounded to 2 decimal places, and size of the shift of the AD curve rounded to 1 decimal place. Do not put minus sign in your answer. a. If government purchases increase by $2 billion in an economy with an MPW of 0.55 then the spending multiplier is shifts to the (Click to select) by S billion. b. If government purchases decrease by $6 billion in an economy with an MPC of 0.40 then the spending multiplier is shifts to the (Click to select) by S billion. c. If a $4 billion tax rise occurs in an economy with an MPW of 0.70 then the spending multiplier is (Click to select) by $ billion. and the AD curve finally d. If a $5 billion tax cut causes an initial $1.6 billion increase in spending on domestic items then the spending multiplier is finally shifts to the (Click to select) by $ billion. and the AD curve finally and the AD curve finally shifts to the and the AD curve

In each case below a particular fiscal policy affects an economy's AD curve via the spending multiplier. Calculate the spending multiplier and find the direction and size of the shift in the AD curve. Enter your responses for the spending multiplier rounded to 2 decimal places, and size of the shift of the AD curve rounded to 1 decimal place. Do not put minus sign in your answer. a. If government purchases increase by $2 billion in an economy with an MPW of 0.55 then the spending multiplier is shifts to the (Click to select) by S billion. b. If government purchases decrease by $6 billion in an economy with an MPC of 0.40 then the spending multiplier is shifts to the (Click to select) by S billion. c. If a $4 billion tax rise occurs in an economy with an MPW of 0.70 then the spending multiplier is (Click to select) by $ billion. and the AD curve finally d. If a $5 billion tax cut causes an initial $1.6 billion increase in spending on domestic items then the spending multiplier is finally shifts to the (Click to select) by $ billion. and the AD curve finally and the AD curve finally shifts to the and the AD curve

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Which type of discretionary fiscal policy is likely to have the smallest overall effect on GDP because of the low MPC related to the policy?
If the marginal propensity to save in an economy is 0.2, and the marginal propensity to import is 0.35, and the marginal tax rate is 0.25, what is the multiplier?
A decrease in government purchases of $10 billion leads to an initial $6 billion decrease in withdrawals. a. In this case MPW IS[ MPC IS and the spending multiplier in this economy is [ propensities and multiplier values rounded to 2 decimal places. b. With this change in government purchases the AD curve shifts to the [(Click to select) I by of the curve shift rounded to 1 decimal place. Do not put a minus sign in your answer. .Enter your responses for marginal billion. Enter your response for the size c. As a result of this shift the equilibrium price level will (Click to select) and equilibrium real output will [(Click to select)
Suppose that out of the original 100 of government spending, 33 will be recycled back into purchases of domestically produced goods and services in the second round and 10.89 is spent in the third round. Following this multiplier effect, what will the value of the total aggregate expenditures be after the fourth round in the cycle is completed?
Suppose that real GDP is currently $19.3 trillion, potential GDP is $23.0 trillion, the government purchases multiplier is 1.6, and the tax multiplier is -1.6. Holding other factors (such as prices and interest rates) constant, how will taxes (T) need to change to bring the economy to equilibrium at potential GDP? Provide your answer in dollars measured in trillions rounded to two decimal places. Use a negative sign for negative changes. Do not include any symbols, such as "S," "," "%," or "," in your answer. Your Answer: Answer
If the spending multiplier is 2.5 and the economy is in a $600 billion contractionary gap, how much should I increase government purchases to eliminate the gap?
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Explain the concept of the spending multiplier.
Suppose that there is an autonomous increase in investment spending of $20 billion and the MPC is given as 0.4, and assuming taxes, imports, and savings are all equal and there are no leakages: How large is the spending multiplier? Use the simple multiplier equation to calculate it. How much is the total change in GDP from this autonomous increase in investment spending? Do you think a larger or smaller MPC would help the economy, and why? What could be some concerns about the Keynesian spending multiplier?
The graph below characterizes a simple economy with only two components of aggregate expenditures: consumption and investment. Consumption and aggregate expenditures per year (billions of dollars) $6,000 Multiplier 5,000 4,000 3,000 2,000 1,000 0 Find the value of the multiplier in this example 45° AE $1,000 2,000 3,000 4,000 5,000 6,000 Real GDP per year (billions of dollars)
14. If MPC is 0.6 and government spending increases by 350, how much does gross domestic product change? 15. If MPC is 0.6 and government tax decreases by 350, how much does gross domestic product change? (NOTE: Refer to the textbook) 16. From #14 and #15, can you tell which policy tool does have a higher multiplier effect?
1. If an economy has an MPC of 0.9 what is the multiplier? 2. If an economy has an MPS of 0.2 what is the multiplier? 3. If an economy has an MPC of .08 and the government needs to close a recessionary gap of 20 Billion dollars how much government spending should occur? 4. If an economy has an MPS of .05 and the government needs to close an inflationary gap of 10 Billion dollars how much should government spending decrease?