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 140 130 Price Level 120 110 888888 100 90 80 70 60 50 LRAS AS AD 40 0 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) Instructions: Enter your answer as a whole number. If you are entering a negative number include a minus sign. a How much does aggregate demand need to change to restore the economy to its long-run equilibrium? S billion b. If the MPC is 0.56, how much do taxes need to change to shift aggregate demand by the amount you found in part a? S billion Suppose instead that the MPC $ 0.92 c How much does aggregate demand and taxes need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and taxes need to change by $ billion.

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 140 130 Price Level 120 110 888888 100 90 80 70 60 50 LRAS AS AD 40 0 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) Instructions: Enter your answer as a whole number. If you are entering a negative number include a minus sign. a How much does aggregate demand need to change to restore the economy to its long-run equilibrium? S billion b. If the MPC is 0.56, how much do taxes need to change to shift aggregate demand by the amount you found in part a? S billion Suppose instead that the MPC $ 0.92 c How much does aggregate demand and taxes need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and taxes need to change by $ billion.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

8
Refer to the following graph. Tax revenue Tax rate The economy is currently at point C. Tax revenue Cincreases; increases Cincreases; decreases Cdecreases; decreases Cremains unchanged; increases cremains unchanged; decreases when tax rate
Price level LRAS SRAS (GDP deflator, 2000 - 100) AD Real GDP (trillions of 2000 dollars) Refer to Figure 16-1. In the graph above, if the economy is at point A, an appropriate fiscal policy by the Congress and the president would be to O lower the discount rate of interest O increase marginal income tax rates O increase government transfer payments execute an open market sale of government securities
5
Using the aggregate expenditures model, answer the questions below to show how government fiscal policy could eliminate either a recessionary expenditure gap or an inflationary expenditure gap.
Suppose the economy begins at full employment. Label this starting point as point "1." Then, suppose that a long strike by coal miners reduces the coal supply and increases the price of coal. Show the effects on your graph and label the new equilibrium point "2." Lastly, suppose our government wants the economy to return to full-employment as quickly as possible. Should the government intervene? If so, show the impact of successful fiscal policy on your graph. Label this new equilibrium point "3."
Consider the graph at right showing an economy in recession. Aggregate demand is currently at AD. Equilibrium currently occurs at Eo. If aggregate demand was ADF, there would be full employment. Suppose the government engages in fiscal policy that results in full crowding out. Using the line drawing tool, draw the new demand curve that shows full crowding out. Carefully follow the instructions above, and only draw the required object. Price level Eo EF ADO F Real GDP per Year ($ trillions) SRASO ADF O U
President Biden is proposing an increase in the corporate income tax rate from 21% to 28%. Although the corporate tax rate will be higher than it is currently, it is still lower than the corporate tax rate of 35% that had been in place since President Clinton. How will this tax increase affect aggregate expenditures, equilibrium GDP and employment? Part of the reason for this proposal is to offset the increased spending from the last three stimulus packages/checks which increased Federal government's debt. Do you agree with the proposed increase in corporate tax rates? Why or why not? What are some of the costs and benefits of the proposed tax changes? Is this the right time to increase taxes? Why or why not?
The following table contains approximate figures for gross domestic product (GDP) and the national debt in the United States for June 2007 and June 2020. The national debt represents the total amount of money owed by the federal government to holders of U.S. securities. All numbers are in trillions of dollars. June 2007 June 2020 GDP (Trillions of (Trillions of Dollars) Dollars) 13.7 Total National Debt 20.89 8.9 20.9 Source: "U.S. Treasury, Bureau of Economic Analysis." Debt Held by Federal Government and Federal Reserve (Trillions of Dollars) 4.7 9 Debt Held Outside Fed. Govt. and Fed. Reserve Foreign Ownership (External U.S. Ownership (External National Debt) National Debt) (Trillions of Dollars) (Trillions of Dollars) 2.2 6.3 2.0 5.6
Use the table to answer the following questions: Public Debt over Time United States France Italy Belgium Australia France Belgium Australia the United States 2001 Debt $3.3 trillion $0.9 trillion $1.5 trillion $0.3 trillion $0.2 trillion According to the table, which country appeared to be in the worst fiscal shape in 2012? Italy GDP $10.2 trillion $1.5 trillion $1.2 trillion $0.3 trillion $0.7 trillion 2011 Debt $12.2 trillion $1.8 trillion $1.7 trillion $0.3 trillion $0.4 trillion GDP $15.0 trillion $2.0 trillion $1.6 trillion $0.4 trillion $1.4 trillion
What is the role of the Council Economic Advisers (CEA) as it relates to the effectiveness of the recent U.S. fiscal policy? Find the names and university affiliations of the present members of the CEA. (This may be a helpful website for finding sum of the information relating to the question. https://www.whitehouse.gov/cea/staff)
3. Budget balances and the national debt The following table lists federal expenditures, revenues, and GDP for the U.S. economy during several years. All numbers are in billions of dollars. Revenues Year (Billions of dollars) 1929 3.9 1948 1967 1986 2005 FEDERAL EXPENDITURES AND RE VENUES (Percent of GDP) 25 20 15 10 41.6 Plot the data for revenues and expenditures as a percentage of GDP on the following graph, rounded to the nearest percent. Use the orange points (square symbol) for expenditures and the green points (triangle symbol) for revenues. Line segments will automatically connect the points. 1929 148.8 769.2 2,153.9 Expenditures GDP (Billions of dollars) (Billions of dollars) 3.1 103.6 1948 29.8 157.5 990.4 2,472.2 1987 YEAR 1986 269.2 2005 832.6 4,462.8 12,421.9 Expenditures Δ Revenues ?