To support the economy against a recession triggered by the Coronavirus, thegovernment is considering increasing public spending. Suppose thegovernment decides to finance the additional spending with new taxes, and toincrease taxes by the same amount as public spending. A critic to thegovernment objects saying that if public spending and taxes increase by thesame amount, no increase in GDP should be expected: what the governmentgives to the economy is taken back via taxes.Use the model of aggregate demand and aggregate supply to study if theproposed economic policy could increase GDP by computing the fiscalmultipliers.a) Start from the model C + 1 + G + NX = Y with C the aggregate level ofconsumption, I the aggregate level of investment, G the level of fiscalspending, NX the net experts and Y the level of GDP. Assume NX = 0and assume that C = c0 + c1(Y-T), with T the level of taxes. Interpretthe economic intuition behind the function for consumption. What isc1?b) Derive the equilibrium level of GDP associated with this model. Studyby how much Y increases when G increases under the assumption T=G.Does your model predict that Y will be affected by the governmentintervention? Why?c) Now assume that NX = X - mY, where X represents total exports and mrepresents the marginal propensity to import. How does your answer toquestion b) change? Why?

Goods Market Equilibrium Condition - IS relation : Y = C + I + G + NX Where , C = c0 + c1(Y - T ) C…

To support the economy against a recession triggered by the Coronavirus, the government is considering increasing public spending. Suppose the government decides to finance the additional spending with new taxes, and to increase taxes by the same amount as public spending. A critic to the government objects saying that if public spending and taxes increase by the same amount, no increase in GDP should be expected: what the government gives to the economy is taken back via taxes. Use the model of aggregate demand and aggregate supply to study if the proposed economic policy could increase GDP by computing the fiscal multipliers. a) Start from the model C + I + G + NX = Y with C the aggregate level of

To support the economy against a recession triggered by the Coronavirus, the government is considering increasing public spending. Suppose the government decides to finance the additional spending with new taxes, and to increase taxes by the same amount as public spending. A critic to the government objects saying that if public spending and taxes increase by the same amount, no increase in GDP should be expected: what the government gives to the economy is taken back via taxes. Use the model of aggregate demand and aggregate supply to study if the proposed economic policy could increase GDP by computing the fiscal multipliers. a) Start from the model C + I + G + NX = Y with C the aggregate level of

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 there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (ADI). Suppose now that the government increases its purchases by $3.5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD) is parallel to AD₁. You can see the slope of AD, by selecting it on the following graph. PRICE LEVEL 116 114 112 110 108 106 104 102 AD 100 100 102 104 106 108 110 OUTPUT (Billions of dollars) 112 114 116 AD₂ | | AD₂ The following graph plots equilibrium in the money market at an interest rate of 3% and a quantity of money equal to $30 billion. Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. Money Supply Money…
Some politicians have suggested that the United States enact a constitutional amendment requiring that the federal government balance its budget annually. Such an amendment, if strictly enforced, would force the government to enact a contractionary fiscal policy whenever the economy experienced a severe recession. This is because when the economy enters a recession, ???
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 Price Level 150 LRAS AS 140 130 120 110 100 90 80 70 60 50 40 30 AD1 AD 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? $ billion b. If the MPC is 0.5, 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 0.6. 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.
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: 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. only the increase in government spending would tend to increase the real GDP.
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 increasing government purchases to reduce the burden of this recession. Fiscal Policy Price Level 180 LRAS AS 160 140 120 100 80 60 40 20 0 AD AD1 100 200 300 400 500 600 700 800 900 Real GDP (billions of dollars) (900, 120) Instructions: Enter your answers as a whole number. a. How much does aggregate demand need to increase to restore the economy to its long-run equilibrium? $ billion b. If the MPC is 0.75, how much does government purchases need to increase to shift aggregate demand by the amount you found in part a? $ billion Suppose instead that the MPC is 0.6. c. How much does aggregate demand and government purchases need to increase to restore the economy to its long-run equilibrium? Aggregate demand needs to increase by $ billion and government purchases need to increase by $ billion.
The following graph plots an aggregate demand curve. Using the graph, shift the aggregate demand curve to depict the impact that a tax hike has on the economy. Suppose the governments of two very similar economies, economy Y and economy Z, implement a tax cut of equal size. The tax cut in economy Y is temporary, while the tax cut in economy Z is permanent. The economies are otherwise completely identical. The tax cut will have a smaller impact on aggregate demand in the economy with the (temporary tax cut/permanent tax cut) .
from the news article (https://foreignpolicy.com/2020/09/16/coronavirus-covid-economic-impact-recession-south-korea-success/) Q1. South Korea announced stimulus package early on, in April. Use Aggregate demand and Supply diagram to show how the stimulus package must have worked? Q2. What is multiplier? How does it work? Do you think it worked in South Korean Case?
As part of its expansionary fiscal measures, the government of South Africa through its finance minister has increased its budget expenditure to over R2.2 trillion for 2023 fiscal year. Assume all other things remain the same, which of the following is likely to happen in the short run? a) Consumption and investment increase in the short run. b) Consumption does not change, but investment increases less than government spending c) Consumption increases but investment decreases in the short run. d) Output increases by the amount that government spending increases.
In the country of Krugman, a business spent $100 million building a factory. GDP eventually increased by 200 million. People spend 11% of every dollar on imports. What is the marginal propensity to consume in this economy? Write your answer as a number, between 0 and 1. If you think the answer is 0, write 0.00, not 0. Answer: Study the graph below. When will the multiplier be biggest? Select one: The multiplier will be the same size no matter what Aggregate Demand is b. The multiplier will be one no matter what aggregate demand is When aggregate demand is at AD1 d. When aggregate demand is at AD3 e When aggregate demand is at AD2 Price Level AD₁ AS e All of these are true AD₂ AD₁ GDP Why is potential output called potential, when it is not actually the most the economy can produce? Select one: a. Because potential is the most the economy can produce right now, with the technology and workers and equipment we have right now. Ob. Because economists just like to be confusing for no reason…
The policies of the federal government influence the outcomes of the various activities in that economy. When government policies change or unplanned events occur, the resulting economic events or activity will usually change. Listed below is a policy or event that affect the performance of the economy: The level of investment decreases because of a lack of confidence in the economy. for the question above, describe what would be the likely outcome in the economy. Use the appropriate tools of analysis, such as aggregate demand and aggregate supply where appropriate, to justify and explain your answer.
Suppose real GDP is currently $12.5 trillion and potential real GDP is $13 trillion. If the president and Congress increased government purchases by $500 billion, what would be the result on the economy?
Does the multiplier effect or crowding out effect occur with increasing gas prices in the United States? If so, which effect is greater? Do the effects influence how your country shifted away or recovered to long-run equilibrium? If these effects don’t apply, why?