Use the Keynesian consumption theory and the Permanent Income Hypothesis to assess the impact of a temporary expansionary fiscal policy on consumption
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- Consider a Keynesian model but where investment (just like consumption) is increasing in aggregate income, e.g., because investment depends on business cash flow. Now that investment depends on aggregate income, a fiscal stimulus has more effect on equilibrium output.Answer true, false, or uncertain. Please briefly explain your answerAccording to the standard textbook Keynesian analysis, which is greater: the tax multiplier or the government spending multiplier? Explain the reasoning behind this relationship.Use the Keynesian cross to predict the impact on equilibrium GDP of equal-sized increases in both goovernment purchases and taxes.
- Consider the following income/expenditure diagram in the simple Keynesian model. If taxes, T, were increased, then Group of answer choices A) The Y = C+S+T line would shift to the right, and equilibrium Y would increase. B) the C+I+G line would shift downward, and equilibrium Y would decrease. C) The Y = C+S+T line would shift to the left, and equilibrium Y would decrease. D) neither of the lines would shift, and equilibrium Y would stay the same. E) the C+I+G line would shift upward, and equilibrium Y would increase.Consider the Keynesian Cross model. If the fiscal multiplier equals 2, and the government decides to increase government purchases by 100, by how much would equilibrium output increase?Consider the IS/LM model. Show the effects of the following policies on Y and r on a graph: a) Contractionary fiscal policy b) Expansionary fiscal policy
- Why will a temporary tax increase be insignificant in reducing consumption expenditures by the amount expectedQ.3.2 Explain, using the AD-AS model, how the South African Government can use fiscal policy as a tool to recover from the negative effects of this COVID-19 pandemic. Your answer must include the following: The description of the type of fiscal policy required; An explanation of how the implementation of this tool will work their way through the economy to achieve the desired effect; The AD-AS graph showing the implications of your recommendations.If the simple Keynesian macroeconomic model is used to explain expansionary fiscal policy, which of the following can be concluded with regard to macroeconomic equilibrium? a) That firms experience an unplanned increase in their inventories. b) The economy will move towards equilibrium. c) Inventory levels will rise above the equilibrium level. d) The effect on equilibrium cannot be determined given the information given
- Using the chart below and your extensive knowledge of the Keynesian economy, answer the following questions: Disposable Income Consumption $0 $300 500 750 1,000 1,200 11 1,500 1,650 2,000 2,100 2,500 2,550 3,000 3,000 1. What is the marginal propensity to consume (mpc)? 2. What is the marginal propensity to save (mps)? 3. What is the multiplier? 4. How is the consumption function written in this example? 5. What does savings equal if disposable income is $2,000?The use of government purchases (G) as a fiscal policy tool can have an effect on long-run growth in the economy. Under what circumstances might an increase in G cause the level of potential output (Y*) to increase? A. If the increase in G causes a permanent increase in the marginal propensity to consume, which causes a permanent rightward shift of the AD curve. B. If the increase in G is offset by an equal decrease in C, I, and NX. C. If the increase in G crowds out private investment. D. If the increase in G leads to a permanent increase in the level of autonomous saving in the economy. E. If the increase in G is spent on public infrastructure that increases the productivity of private-sector production.
