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

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The Nobel prize winning economist Milton Friedman liked to tell this story: There once was a town where thanks to expansive fiscal policy in Washington, the town had more money to fix roads and build bridges. The construction workers on those projects splurged on steak dinners every Friday, the meat for which they bought at the local butcher shop. The butcher was thrilled by increased sales of meat, as was the butcher's wholesale supplier. In fact, the butcher's supplier tried to put in bigger orders but it wasn't possible to buy more because the slaughterhouses were caught short, too. The result? Higher prices for meat got passed up from the slaughterhouse to the wholesaler to the butcher to the construction workers. With the possible exception of the owners of cattle, nobody was happy. Now a news reporter heard about surging steak prices in the town and decided to write a story about what was happening. Since the initial increase in meat prices was seen in the price of meat sold by…
Consider the following economy: C = 300 + 0.8 (Y – T) I = $300 G = $200 and T = $250 What is the equilibrium level of national income? What is the change in national income, if only government spending increases by $10? What is the government spending multiplier? What is the change in national income, if only taxes increase by $10? What is the tax multiplier? Based on (b) and (c), does the balanced budget multiplier theorem hold? What is the change in national income, if both government spending and taxes increase by $10 each?
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 the economy is described by the following: C = 50+ 0.8 (Y-T) lp = 200 G = 100 T = 100 What is the multiplier for government spending in this economy? 10 100 2.5 1.25 5
Suppose there is some hypothetical closed economy in which households spend $0.75 of each additional dollar they earn and save the remaining $0.25. The marginal propensity to consume (MPC) for this economy is _____ , and the spending multiplier for this economy is _____ Suppose the government in this economy decides to decrease government purchases by $250 billion. The decrease in government spending will lead to a decrease in income, creating an initial change in consumption equal to $______ billion. This decreases income yet again, leading to a second change in consumption equal to $________ billion . The total change in demand resulting from the initial change in government spending is $ ________ trillion. The following graph shows the aggregate demand curve (AD1AD1) for this economy before the change in government spending. Use the green line (triangle symbol) to plot the new aggregate demand curve (AD2AD2) after the multiplier effect takes place. For simplicity,…
Which of the following is true? a. All economists agree that the tax multiplier is smaller than the government spending multiplier. b. In the standard Keynesian textbook analysis, the tax multiplier is greater than the government spending multiplier. c. There is disagreement among economists regarding the size of the tax multiplier relative to the size of the government spending multiplier. d. All economists agree that the tax multiplier is greater than the government spending multiplier.
A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009. At that time, the president's economists estimated the multiplier to be a. 2.4 for government purchases and 1.4 for tax cuts. b. 3.2 for government purchases and 2.0 for tax cuts. c. 1.6 for government purchases and 0.4 for tax cuts. d. 1.6 for government purchases and 1.0 for tax cuts.
In the 2009 stimulus package, Congress included tax cuts as well as changes in government spending. It makes sense that Congress included increases in government spending because changes in government spending have a larger multiplier than changes in taxes. Which statement gives the MOST likely reason for Congress to include tax cuts? Congress included tax cuts because - The decision lag is shorter than the lag in the effects of spending changes. - The information lag is shorter than the lag in the effects of spending changes. - The recognition lag is longer than the lag in the effects of spending changes. - The implementation lag is shorter than the lag in the effects of spending changes.
Income Expenditures 0 100 100 150 200 200 300 250 Refer to the table above to answer the following: (a) At an income level of $200, how much is autonomous expenditures and how much is induced? (b) Given the expenditures function AE = $4,000 + 0.6Y and income of $1,000, how much is spent and how much is induced?
Use the following equations for exercises C = $ 100 + .8 Y I = $ 200 G = $ 250 X = $100 - .2 Y a.What is the equilibrium level of real GDP? b.What is the new equilibrium level of real GDP if government spending increases by $ 150? c.What is the new equilibrium level of real GDP if government spending and taxes both increases by $ 150?
The following table provides some information on government spending (G) and tax revenues (T) at different levels of real GDP in a hypothetical economy. Note: Throughout this problem you can assume, for simplicity, that government transfers are zero. Real GDP (Billions of dollars) 460 GOVERNMENT SPENDING AND TAXES (Billions of dollars) 80 78 76 74 Use the blue line (circle symbols) to plot the government spending schedule presented in the table. Then use the orange line (square symbols) to plot the economy's tax revenues schedule. 72 70 68 → 68 64 62 + 60 500 540 400 420 Government Spending (G) (Billions of dollars) 72 440 72 72 460 480 500 520 540 REAL GDP (Billions of dollars) 560 Tax Revenues (T) (Billions of dollars) 70 580 72 74 600 404-8141 Deficits Surpluses ?
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