You are hired by the Council of Economic Advisors (CEA) as an economic consultant. The chairperson of the CEA tells you that she believes the current unemployment rate is too high. The unemployment rate can be reduced if aggregate output increases. She wants to know what policy to pursue to increase aggregate output by $400 billion. The best estimate she has for the MPC is 0.8. Which of the following policies should you recommend? Yanıtınız: reduce the budget deficit by $469 billion reduce taxes by $100 billion reduce taxes by $100 billion and increase government purchases increase government purchases by $100 billion $50 billion

You are hired by the Council of Economic Advisors (CEA) as an economic consultant. The chairperson of the CEA tells you that she believes the current unemployment rate is too high. The unemployment rate can be reduced if aggregate output increases. She wants to know what policy to pursue to increase aggregate output by $400 billion. The best estimate she has for the MPC is 0.8. Which of the following policies should you recommend? Yanıtınız: reduce the budget deficit by $469 billion reduce taxes by $100 billion reduce taxes by $100 billion and increase government purchases increase government purchases by $100 billion $50 billion

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 term potential output refers to: a)The maximum possible output for an economy b)The quantity of output that would be produced if every member of the labor force worked 40 hours per week c)The quantity of output produced when the price level is the same as firms and workers expected when they agreed on input prices and wages d)The quantity of output produced at the intersection of the AD and AS curves
Discuss how decisions by consumers (householders) and firms can shift the AD curve left or right. Holding AS constant, explain how this will tend to change the equilibrium price level and real GDP produced in the economy. Lastly, how could the government play a role in helping the economy recover from a recession in this model? (11.4)
Suppose that the federal government decides to reduce the budget deficit and cuts government purchases by $200 billion and raise personal income taxes by $200 billion. Suppose the MPC = .5. How much and in which direction would the AD curve shift because of the government spending cut? Show your work. How much and in which direction would the AD curve shift because of the tax increase? Show your work. (Note: we know these numbers in parts A & B are not accurate quantitative assessments of the policy actions - but the exercise allows us to think about the mechanisms through which these policy actions will affect the economy.) Using the above numbers, draw the AS-AD diagram and illustrate the short-run impact of the combined policy action assuming the economy begins at potential output. Label the original equilibrium with point "A" and the new short-run equilibrium with point "B". Be sure to label the magnitude of the curve shift. Describe the impact of the policy action on…
Match the following terms ( terms are labeled 1-10 )to the correct definition(definitions are labeled a through J) aggregate consumption function, multiplier, planned aggregate expenditure (PAE), income-expenditure equlibrium GDP, marginal propensity to consume (MPC), consumption function, unplanned inventory investment, actual investment spending,inventory, autonomous spending A) The amount by which consumption rises when disposable income rise by one dollar marginal propensity to consume (MPC) B) The level of output (real GDP) at which output (real GDP) equals planned aggregate expenditure. income-expenditure equlibrium GDP C) The ratio of total change in real GDP caused by an autonomous change in aggregate spending. multiplier D) Total planned spending on final goods and services in the economy. aggregate consumption function E) The equation showing how individual household's consumer spending varies with its current disposable income. consumption function F) Consumption…
The marginal propensity to consume is defined as: Question 64 options: the ratio of change in consumption on both domestic and foreign items to the change in income average consumption as a proportion of income the ratio of the change in consumption on domestic items to the change in income the change in consumption on domestic items multiplied by the change in income the change in consumption on domestic and foreign items multiplied by the change in income
Which of the following best describes a negative impact of Brexit on the UK? The Pound sterling became the dominant currency in global trade. The UK saw an increase in educational exchange programs with EU countries. The UK experienced an immediate boost in global trade partnerships outside the EU. Products from EU member nations flooded the UK market, impacting domestic producers.
A decrease in the price level will:(a) shift the AS curve to the left.(b) shift the AD curve to the left.(c) shift the AS curve to the right.(d) leave both the AD curve and the AS curve unchanged.
Please solve
You are hired by the Bureau of Economic Analogies (BEA) as an economic consultant. The chairperson of the BEA tells you that he believes the current unemployment rate is too high. The unemployment rate can be reduced if aggregate output increases. He wants to know what policy to pursue to increase aggregate output by $700 billion. The best estimate he has for the MPC is 0.8. Which of the following policies should you recommend? Select one: a. increase government spending by $700 billion and taxes by $600 billion b. reduce government spending by $350 billion and reduce taxes by $250 billion c. increase government spending by $350 billion and reduce taxes by $700 billion d. increase both government spending and taxes by $700 billion
Let's say you are the chair of economic advisors to the president. Assume that the economy, as depicted in an AD/AS framework is at: potential (full employment) output, The intersection of the SRAD, SRAS, and LRAS, all intersect at the level of potential (full employment) output and a corresponding price level ( or an acceptable rate of inflation). The economy's mpc is .75, which is presumed to remain constant. Now, global problems emerge, and the US decided to produce many new fighter jets immediately to the region under duress. The new jets will cost $55 b., and other expenditures by the government cannot be cut. The president is concerned that the new expenditures will create an inflation, but needs to produce the new jets immediately. What policies would you propose, that would enable the country to produce the new jets, without creating an inflation? Use the AD/AS framework to illustrate your answer. Assume any taxes are lump sum taxes. Specify the spending and taxing…
The rate of output and planned expenditures for the economy of timbuktu are shown in the following table: Total Output(Real GDP in Billion dollars) Planned Aggregate Expenditures (Two-sector Economy) (in billions) 5,000 5,250 5,500 5,500 6,000 5,750 6,500 6,000 7,000 6,250 a. If the economy's full employment rate of output is 6.0 trillion, what will happen to the unemployment rate assuming that it will persist into future? b. What would happen to the equilibrium level of output/income if there will be an autonomous increase in investment of 250 billion?
Suppose an economy is initially in equilibrium at its potential output level. As a result of an unexpected crisis in the financial markets, the AD curve suddenly shift to the left by a horizontal distance equal to $140 billion. Suppose the government wants to combat the resulting recession by increasing its spending. Assuming the marginal propensity to consume in this economy is 0.25, by how much must the government increase its spending to restore the economy to its initial level of output? (You can ignore the fact that the government must somehow finance the resulting budget deficit.) (Calculate your answer in billions of CAD, round it to one decimal places, and write it without units. E.g., write 1.0 for $1 billion.)