You can use the AE model to show that an increase in government purchases can increase output but in many cases it is hard to find useful things for the government to quickly spend money on. Many people in Boston say “the T is so slow, why not spend it on building or replacing the subway lines?" but new subways lines can take years to plan. A fast alternative is to cut net taxes by sending people transfer payments. Consider a standard AE model with this consumption function, C=4+0.5Y-bT and unknown and unimportant values for planned investment and planned government purchases. What is the "T multiplier," which is defined as the change in equilibrium income per $1 increase in taxes? -b -2b +b +2b O O O O
You can use the AE model to show that an increase in government purchases can increase output but in many cases it is hard to find useful things for the government to quickly spend money on. Many people in Boston say “the T is so slow, why not spend it on building or replacing the subway lines?" but new subways lines can take years to plan. A fast alternative is to cut net taxes by sending people transfer payments. Consider a standard AE model with this consumption function, C=4+0.5Y-bT and unknown and unimportant values for planned investment and planned government purchases. What is the "T multiplier," which is defined as the change in equilibrium income per $1 increase in taxes? -b -2b +b +2b O O O O
Macroeconomics: Principles and Policy (MindTap Course List)
13th Edition
ISBN:9781305280601
Author:William J. Baumol, Alan S. Blinder
Publisher:William J. Baumol, Alan S. Blinder
Chapter8: Aggregate Demand And The Powerful Consumer
Section: Chapter Questions
Problem 3TY
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![You can use the AE model to show that an increase in government purchases can increase output
but in many cases it is hard to find useful things for the government to quickly spend money on.
Many people in Boston say "the T is so slow, why not spend it on building or replacing the subway
lines?" but new subways lines can take years to plan. A fast alternative is to cut net taxes by
sending people transfer payments.
Consider a standard AE model with this consumption function, C=4+0.5Y-bT and
unknown and unimportant values for planned investment and planned government purchases.
What is the "T multiplier," which is defined as the change in equilibrium income per $1 increase in
taxes?
-b
-2b
+b
+2b
O O O O](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7d4750b4-47f0-428a-b25c-6dd4ada7bd80%2Fbb579f2c-6603-4db0-9e52-09125e04f6c3%2Fsyol7ey_processed.png&w=3840&q=75)
Transcribed Image Text:You can use the AE model to show that an increase in government purchases can increase output
but in many cases it is hard to find useful things for the government to quickly spend money on.
Many people in Boston say "the T is so slow, why not spend it on building or replacing the subway
lines?" but new subways lines can take years to plan. A fast alternative is to cut net taxes by
sending people transfer payments.
Consider a standard AE model with this consumption function, C=4+0.5Y-bT and
unknown and unimportant values for planned investment and planned government purchases.
What is the "T multiplier," which is defined as the change in equilibrium income per $1 increase in
taxes?
-b
-2b
+b
+2b
O O O O
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