Answered: In each of the following cases,…

In each of the following cases, calculate the spending multiplier and determine the size and shift of each fiscal policy on the AD (aggregate demand) curve.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 3P

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Explain the difference between the government purchases multiplier and the net tax multiplier. If the MPC falls, what happens to the tax multiplier?
suppose the government wishes to illuminate recessionary GAP of 100 billion and the MPC is .75. How much must the government increase in spending instead of increasing government spending by the amount you calculated what would be the effect of the government decreasing taxes by this amount explain?
Fiscal policy creates a multiplier effect because O The government always runs a deficit Government spending and tax changes will generate even more government spending O Government spending and tax changes will cause other economies to do the same thing. Government spending and tax changes will generate additional changes in consumer spending, creating more jobs, production and even more ripples of additional spending
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 changing taxes to reduce the burden of this recession. Fiscal Policy Instructions: Enter your answer as a whole number. If you are entering a negatlve number Include a minus sign. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrilum? $, billion b. If the MPC is 0.6 , how much do taxes need to change to shift aggregate demand by the amount you found in part a? $, billion Suppose Instead that the MPC is 0.8 . c. How much does aggregate demand and taxes need to change to restore the economy to Its long-run equilibrlum? Aggregate demand needs to change by $ billion and taxes need to change by $ billion.
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…
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 signs in your answers. a. If government purchases increase by $3 billion in an economy with an MPW of 0.65 then the spending multiplier is AD curve finally shifts to the (Click to select) by $ billion. b. If government purchases decrease by $7 billion in an economy with an MPC of 0.20 then the spending multiplier is AD curve finally shifts to the (Click to select) by $ billion. and the [ and the billion. c. If a $5 billion tax rise occurs in an economy with an MPW of 0.60 then the spending multiplier is shifts to the (Click to select) by $ and the AD curve finally d. If a $2 billion tax cut causes an initial $0.3 billion increase…
How do induced taxes and needs-tested spending change during a recession? What is the effect of induced taxes and needs-tested spending on the multiplier effects of changes in autonomous expenditure? Induced taxes _______ during a recession. Needs-tested spending _______ during a recession. A. decrease; increase B. increase; decrease C. increase; increase D. decrease; decrease Induced taxes and needs-tested spending _______ the multiplier effects of changes in autonomous expenditure. A. sometimes increase and sometimes decrease B. do not influence C. increase D. decrease
The marginal propensity to consume (MPC) for this econamy is . and the spending multiplier for this economy is Suppose the govemment in this economy decides to decrease govemment purchases by $250 bilion. The decrease in government purchases will lead to a decrease in income, generating an initial change in consumption equal to second change in consumption equal to This decreases income yet again, causing a 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 govemment spending. Use the green line (trangie symbol) to plot the new aggregate demand curve (AD:) after the multiplier effect takes place. For simplioity, assume that there is no "crowding out." Hint: Be sure that the new aggregate demand curve (AD) is paralel to the initial aggregate demand curve (AD). You can see the slope of AD by selecting t on the graph. 540 AD. AD, 130 100 OUTPUT (Tions of…
8. Given each of the following values for both the spending multiplier and the tax multiplier, calculate both the MPC and the MPS. a. 20 b. 10 c. 8 d. 5
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 the MPC is 0.75 and policymakers have targeted real GDP to decrease by $300billion. By how much must taxes be increased to achieve this goal?
Please answer for part f , g and h only