What are the effects of a tax cut on consumption and savings in the presence of credit market imperfections? Does the Ricardian equivalence hold? and savings With a current tax cut, consumption presence of credit market imperfections. The Ricardian equivalence hold in the

What are the effects of a tax cut on consumption and savings in the presence of credit market imperfections? Does the Ricardian equivalence hold? and savings With a current tax cut, consumption presence of credit market imperfections. The Ricardian equivalence hold in the

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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What are the main tax credit programs designed to boost the incomes of people who are unemployed or low earners? How effective are these tax credit programs, and for whom? Give two references and citations.
Suppose the government implements contractionary fiscal policy. As a result, the inflation rate will likely _____ and the real growth rate will likely _____ in the short run. Rise or fall?
Why $100 spent by government brings a larger increase in the equilibrium level of income than $100 given in tax cut? Explain your answer.
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17 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. Price Level 160 140 120 100 80 60 40 20 0 (40, 100) Fiscal Policy LRAS प्रै ======= AD₁ billion AS 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) $| Suppose instead that the MPC is 0.5. AD Instructions: Enter your answers as a whole number. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ billion b. If the MPC is 0.6, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? c. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and government purchases need to change by $ billion.
Price Level aa- 0 X AS AD₂ AD₁ Z Price Level X AS AD₂ AD' AD₁ YZ Real GDP (Billions) Graph A Real GDP (Billions) Graph B Refer to the diagrams. Suppose that government undertakes fiscal policy designed to increase aggregate demand from AD₁ to AD2 and thereby to increase GDP from X to Z. In terms of graph B, which of the following might explain why GDP increases to Y rather than to Z? decrease in the saving schedule crowding-out effect reduction in tariffs imposed by our trading partners depreciation of the dollar
"Even if there is full information and that wages and prices are fully flexible as what the Classical economists believe, an expansionary fiscal policy can still change the output of the economy" Outline an economic model that explains this possibility.