ECON MACRO (with ECON MACRO Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
5th Edition
ISBN: 9781305659094
Author: William A. McEachern
Publisher: Cengage Learning
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Textbook Question
Chapter 11, Problem 1.5P
Explain the difference between the government purchases multiplier and the net tax multiplier. If the MPC falls, what happens to the tax multiplier?
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ECON MACRO (with ECON MACRO Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
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- Explain carefully why the tax multiplier is negative and why it is smaller in absolute value than the government expenditure multiplier.arrow_forwardSuppose that real GDP for an economy is currently 16,000 billion, the government purchases multiplier is 2.2 and the tax multiplier is -1.2. If the government deploys additional spending of 600 billion and cuts taxes by 120 billion, where will GDP end up (in billion)?arrow_forwardCalculate the government spending and tax multipliers for each income bracket, considered separately. MPC Tax Multiplier Income/spending Multiplier Household income 0-$30,000 $31,000-50,000 $51,000-80,000 $80,000 and above 0.9 0.8 0.75 0.6arrow_forward
- What's the tax multiplier if MPC = 0.75? Select one: a. -4 b. -3 С. 3 d. 0.33arrow_forwardHow does an increase in tax influence the size of the multiplierarrow_forwardIncreasing government expenditure is likely to have a larger multiplier effect than an equivalent reduction in taxation. Explain why this is so.arrow_forward
- A. If your MPC = 0.6 and government spending (G) increases by $800. What will happen to the equilibrium income? The Effect of Taxation: Tax Multiplier = -MPC X Spending Multiplier Problems: B. If the MPC = 0.8 and taxes go up by $1000, what will happen to the equilibrium income? Please fully complete both problems.arrow_forwardSuppose the following list of events describes all of the economic activity resulting from an increase in government spending. Suppose that at each step after the initial one, the marginal propensity to consume is 0.62 and the tax rate is 8%. Step 0. The government spends $8500 on meat to host a very large dinner for foreign diplomats. Step A. The butcher takes the income earned by selling the meat, saves some, and spends the rest on a wedding cake for his daughter. Step B. The baker who produced the wedding cake saves some of her earnings and uses the rest to purchase beautiful candlesticks as gifts for all of her friends. Step C. The local candlestick maker saves some of his revenue for retirement and spends the rest on building materials to improve his house. Instructions: Modify the settings in the interactive tool to represent this event. Then click "Spending Rounds" and use the table to answer the following questions. Round answers to the nearest cent, if necessary. How much does…arrow_forwardPlease answer everything in the photo. The bottom question is asking if it is taxes or government purchases.arrow_forward
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