Cazenovia is in the midst of a bad recession, and its Congress has placed economic recovery at the top of its political agenda. Different expansionary fiscal policies are currently being examined, but members of Congress areaware of the problems associated with large, sustained government deficits and will not accept any proposal that increases the deficit by more than $3 million.After lengthy discussions, these are the final proposals:Plan A: Spend $3 million on highwaysPlan B: Reduce taxes by $3 millionAssume the economy of Cazenovia is characterized by the following four equations in the short run:Y = C+/+ G + NX| = 6 (a constant)C = Co + CAY - T)NX = 0where C, = 50 and Cy = 0.8.Using the government expenditure multiplier from the simple model presented in the chapter, the plan to spend $3 million on highways will increase Y (GDP) by S million. (click the following icon for help answering this question)Using the government taxation multiplier from the simple model presented in the chapter, the plan to reduce taxes by $3 million will increase Y (GDP) by S million. (click the following icon for help answering this question)The plan that appears to be the most effective in achieving Congress's goal is to

To find whether plan-A will help congress achieve its goal or plan-B, we use the…

Using the government expenditure multiplier from the simple model presented in the chapter, the plan to spend $3 million on highways will increase Y (GDP) by Smillion. (click the following icon for help answering this question) Using the government taxation multiplier from the simple model presented the chapter, the plan to reduce taxes by $3 million will increase Y (GDP) by $ million. (click the following icon for help answering this question) The plan that appears to be the most effective in achieving Congress's goal is to

Using the government expenditure multiplier from the simple model presented in the chapter, the plan to spend $3 million on highways will increase Y (GDP) by Smillion. (click the following icon for help answering this question) Using the government taxation multiplier from the simple model presented the chapter, the plan to reduce taxes by $3 million will increase Y (GDP) by $ million. (click the following icon for help answering this question) The plan that appears to be the most effective in achieving Congress's goal is to

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

TRUE/FALSE We argued that the tax multiplier is higher in absolute value than the government spending multiplier.
In an economy such that: C = 200 + 0.80 (Y – T) Md = 0.20 Y - 10 R I = 40 - 20 R Ms = 200 + BP X = 30 - 0.05 Y BP = X + K T = 100 K = 20 + 10R G = 150 Determine the equilibrium levels of Y and R. If T increases to $150, what are the new Y and R? What is the tax multiplier?
Suppose there is some hypothetical closed economy in which households spend $0.65 of each additional dollar they earn and save the remaining $0.35. The marginal propensity to consume (MPC) for this economy is 0.65 , and the spending multiplier for this economy is 2.8571 . Suppose the government in this economy decides to increase government purchases by $350 billion. The increase in government spending will lead to an increase in income, creating an initial change in consumption equal to (blank). This increases income yet again, leading to a second chance in consumption equal to (blank) . The total change in demand resulting from the initial change in government spending is (blank) .
can you explain this a little more for me? its a practice quiz. i provided the prof's answer and mild explanation of the correct answer, but I still dont understand it. 13. If government spending is increased by $5, and this increase in spending is financed by a tax increase in the same amount, the effect on equilibrium would be: A). zero – the balance each other out. B) an increase in equilibrium of $10. C) a decrease in equilibrium of $5. D) an increase in equilibrium of $5. This is his answer: 13. d (compare fiscal policy options #1 and #2 shown above and use $5 for both ∆G and ∆Tx;use any MPC, for example .90) i dont understand how to math it. Can you show me how?
True or False? Explain: The multiplier effect is likely to be greatest when the government spending is targeted at the poorest The poor will always spend most of the money they get as benefits as soon as possible Multiplier effect does not depend on who receives the money The richest people will spend a larger proportion of their money than the poorest
The economy of Bananaland can be characterized by Equation 9.3. EQUATION 9.3: C = 2,000 + 0.75Yd T = 200 G = 400 I = 500 Calculate the government spending multiplier.
C is consumer expenditure T is tax revenue Y is aggregate output I is investment expenditure r is interest rate G is government expenditure L is money demand M is money supply Derive the relevant matrix inverse (do not use Cramer's rule) to solve for the equilibrium level of income in terms of government expenditure (G). At what level of public spending does the government balance its budget? (Hint: the endogenous variables are Y and r).
Increasing government expenditure is likely to have a larger multiplier effect than an equivalent reduction in taxation. Explain why this is so.
For the U.S. government, which of the given is NOT an example of discretionary spending? defense spending science spending Medicaid Medicare For the U.S. government, which of the given is NOT an example of mandatory spending? Medicare education spending Social Security interest on the national debt Which type of spending currently takes up a larger proportion of the U.S. federal budget? Mandatory spending and discretionary spending take up an equal amount. mandatory spending discretionary spending
a) Explain very briefly what you understand from income effect and substitution effects of change in income tax rates (you do not need to use a graph) b) Discuss whether supply-side policies have been successful in improving the performance of an economy regarding taxation.
2. Fiscal policy Suppose a hypothetical economy is currently in a situation of deficient aggregate demand of $64 billion. Four economists agree that expansionary fiscal policy can increase total spending and move the economy out of recession, but they are debating which type of expansionary policy should be used. Economist A believes that the government spending multiplier is 8 and the tax multiplier is 4. Economist B believes that the government spending multiplier is 4 and the tax multiplier is 2. Compute the amount the government would have to increase spending to close the output gap according to each economist's belief. Then, for each scenario, compute the size of the tax cut that would achieve this same effect. Policy Options for Closing Output Gap Increase in Spending Tax Cut (Billions of dollars) Spending Multiplier (Billions of dollars) Tax Multiplier 4 Economist A 8 Economist B 4 2 Economist C favors increases in government spending over tax cuts. This means that Economist C…
Suppose the MPC is 34 and the government wants to increase output by $2000. 1. How much should government spending increase? 2. How much should taxes decrease? (You can leave your answer as a fraction) 3. Describe the intuition behind why these two values are different 4. Suppose instead the government wants to decrease output by $ 2000. By how much should they raise taxes?