Suppose that Congress and President decide on lowering taxes and increasing government spending in the next fiscal year. According to the aggregate demand and aggregate supply model: O both the tax cut and the government spending would tend to increase the real GDP. only the tax cut would tend to increase the real GDP. neither the tax cut nor the increase in government spending would tend to increase the real GDP. O only the increase in government spending would tend to increase the real GDP.

Suppose that Congress and President decide on lowering taxes and increasing government spending in the next fiscal year. According to the aggregate demand and aggregate supply model: O both the tax cut and the government spending would tend to increase the real GDP. only the tax cut would tend to increase the real GDP. neither the tax cut nor the increase in government spending would tend to increase the real GDP. O only the increase in government spending would tend to increase the real GDP.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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60 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 0.85 and taxes are cut by $8 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
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1.6
Suppose the equilibrium level of income exceeds the full employment level of income and there is high inflation. Hence, the government decides to implement a fiscal policy that will act to reduce national output and prices. This can be accomplished by: O increasing government spending such that aggregate expenditures are increased. O raising taxes and government spending by the same amount such that aggregate supply is decreased and aggregate demand is increased. O decreasing government spending such that aggregate demand is reduced. lowering average tax rates such that aggregate supply is increased. O increasing transfer payments such that aggregate expenditures decline.
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4. Why does a reduction in taxes have a smaller multiplier effect than an increase in government spending of an equal amount?
Answer exercises 11-14 on the basis of the following information. Assume that equilibrium real GDP is $800 billion, potential real GDP is $950 billion, the MPC is .80, and the MPI is .40.
Attempts 10. Crowding out effect Keep the Highest/2 Suppose economists observe that an increase in government spending of $13 billion raises the total demand for goods and servic If these economists ignore the possibility of crowding out, they would estimate the marginal propensity to consume (MPC) to be Now suppose the economists allow for crowding out. Their new estimate of the MPC would be than their initial one. Grade It Now 3/4 1/4 4 52 billion. Save & Continue