Price LevelP3P2PlIQI1Q31Q2Real OutputAS2AS1AD1AD2Figure 8.5In Figure 8.5, according to Keynesians, if equilibrium real output is Q and full-employment real output is Q₂, anappropriate fiscal policy lever would be to Multiple ChoiceIncrease AD by increasing income taxes.Increase AD by increasing government spending.Increase AS by reducing government regulations.Reduce AS by tightening air pollution standards to improve air quality.

In figure 8.5, according to Keynesians, if equilibrium real output is Q1 and full employment real…

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that the marginal propensity to consume is dC/dy= 0.4 + (1 / sq. root of 3y + 10)(in billions of dollars) and that consumption is $9 billion when disposable income is $0. Find the nationalconsumption function C. Round numbers in your answer to two decimal places when appropriate.
a) Explain the principle of consumption smoothing. Illustrate this concept with a diagram. b) Explain how borrowing constraints can impede the process of consumption smoothing. If many households are affected by such constraints, explain how this may result in a “Keynesian" consumption function. c) In a closed economy Keynesian Cross framework show the link between the consumption function and the "multiplier". d) What assumptions are required to make the multiplier model relevant to the impact of fiscal and monetary policy?
Macmillan Learning Aggregate Demand I-Work It Out Question 1 In the Keynesian cross model, assume that the consumption function is given by C = $170+0.7(Y-T) Planned investment is $100; government purchases and taxes are both $100. c. If government purchases increase to $115, what is the new equilibrium income? What is the multiplier for government purchases? new Y= $ multiplier:
Using the graph below, assume Yf=$14.2 Trillion and Y1 = $14.9 Trillion, then with an MPC of 93%, what would Keynes recommend the government does? ASLR ASSR1 PL P1- P2- AD1 Yf Y1 RGDP = Y a. The government should cut its spending by $700 billion O b. The government should cut its spending by $49.01 billion Oc. The government should increase its spending by $700 billion ◇ d. The government should increase its spending by $49.01 billion
Suppose an economy is initially in equilibrium at its potential output level. As a result of an unexpected crisis in the financial markets, the AD curve suddenly shift to the left by a horizontal distance equal to $140 billion. Suppose the government has decided to restore the economy to its initial level of output by simultaneously increasing its spending and increasing taxes (so that it does not run into a deficit). Assuming the marginal propensity to consume in this economy is 0.25, by how much must the government increase its spending (and taxes) to achieve its goal? (Calculate your answer in billions of CAD, round it to one decimal places, and write it without units. E.g., write 1.0 for $1 billion.
Refer to the graph below. Assume that the economy is in initial equilibrium where AS₁ intersects AD₁. Then a supply shock occurs that shifts AS₁ to AS2. If the government counters with an expansionary fiscal policy that shifts AD₁ to AD2, then it is most likely that: Price Level ama a 0 AS₂ Multiple Choice 23AS₂AS₁ AD ₂ AD₁ Q3 Q Q Real GDP AS2 will shift to AS₁. AS2 will shift to AS3 and AD2 will shift to AD1. AS2 will shift to AS3.
"Assuming a closed economy, if the government decides to increase its spending by $100 million without increasing taxes, explain how this fiscal policy might affect the national income, interest rates, and investment levels according to the Keynesian economic model. Additionally, discuss the potential crowding-out effect that might occur as a result of this increased government spending."
Economic Adjustments Suppose the economy is at point c. A Keynesian economist would advocate Group of answer choices allowing the economy's self-correcting mechanism to move the economy to point a. pursuing expansionary fiscal policies to move the economy to point a. pursuing expansionary fiscal policies to move the economy to point b. pursuing expansionary fiscal policies to move the economy to point d.05
Assume MPC=0.75. If an initial fiscal restraint of $100 billion is desired, by how much must Round your responses to two decimal places Instructions: a government spending be reduced? 25.00 bilion
The economy is currently at a level of output that exceeds potential GDP (Yp). List two fiscal policy options that would move the economy closer to potential real GDP. Show and explain how your policy would achieve the desired result. Make sure to explain what will happen to output and price level. Policy Options: Explanation:
Refer to the above graph. The economy is initially at output level Y₁. To close the output gap with fiscal policy, policymakers should A B C D raise interest rates. increase government spending. raise sales tax to encourage savings. loosen environmental regulations to lower production costs.
Keynes believes that when the economy is in liquidity trap, fiscal policy is ineffective. True or False

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In Figure 8.5, according to Keynesians, if equilibrium real output is Q and full-employment real output is Q₂, an appropriate fiscal policy lever would be to