PRINCIPLES OF MACROECONOMICS (LL)W/ACC.
7th Edition
ISBN: 9781264088980
Author: Frank
Publisher: MCG
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Chapter 13, Problem 9RQ
To determine
Explain three factors that makes the fiscal policy more complicated to practice.
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Assuming you are the Minister of Finance and Economic Planning for Nigeria, in charge of Fiscal Policy. The Research Director of the Ministry brought you the following data on Nigeria’s for the previous fiscal year, 2021.
An examination of the data reveals that, during the fiscal year 2021, households in Nigeria saved 20% of their disposable income (Yd) and spent the rest on consumption. In addition, ₦5,000.00 was spent on Consumption expenditure (C), which is independent of income and Gross Private Investment (I) was ₦ 7,000.00. Total Government expenditure (G) which stood at ₦8,000.00 was supposed to be financed by a lump sum tax of ₦2,000.00 (independent of income) and a proportional tax rate of 25% of national income. Exports (X) stood at ₦2,500.00. In addition, the country’s import (M) during the previous fiscal year comprises of ₦1,000.00 which was independent of the country’s national income and 10% which was dependent of the country’s national income. Given these data on…
If the simple Keynesian macroeconomic model is used to explain expansionary fiscal policy, which of the following can be concluded with regard to macroeconomic equilibrium?
a) That firms experience an unplanned increase in their inventories.
b) The economy will move towards equilibrium.
c) Inventory levels will rise above the equilibrium level.
d) The effect on equilibrium cannot be determined given the information given
Assume you are the Minister of Finance and Economic Planning for Ghana, in charge of Fiscal Policy. The Research Director of the Ministry brought you the following data on Ghana for the previous fiscal year, 2021. An examination of the data reveals that, during the fiscal year 2021, households in Ghana saved 20% of their disposable income (Yd) and spent the rest on consumption. In addition, GH¢5,000.00 was spent on Consumption expenditure (C), which is independent of income and Gross Private Investment (I) was GH¢7,000.00. Total Government expenditure (G) which stood at GH¢8,000.00 was supposed to be financed by a lump sum tax of GH¢2,000.00 (independent of income) and a proportional tax rate of 25% of national income. Exports (X) stood at GH¢2,500.00. In addition, the country’s import (M) during the previous fiscal year comprises of GH¢1,000.00 which was independent of the country’s national income and 10% which was dependent of the country’s national income. Given these data on Ghana…
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PRINCIPLES OF MACROECONOMICS (LL)W/ACC.
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- Assume you are the Minister of Finance and Economic Planning for Ghana, in charge of Fiscal Policy. The Research Director of the Ministry brought you the following data on Ghana for the previous fiscal year, 2021. An examination of the data reveals that, during the fiscal year 2021, households in Ghana saved 20% of their disposable income (Y) and spent the rest on consumption. In addition, GH¢5,000.00 was spent on Consumption expenditure (C), which is independent of income and Gross Private Investment (I) was GH¢7,000.00. Total Government expenditure (G) which stood at GHe8,000.00 was supposed to be financed by a lump sum tax of GH¢2,000.00 (independent of income) and a proportional tax rate of 25% of national income. Exports (X) stood at GH€2,500.00. In addition, the country's import (M) during the previous fiscal year comprises of GH¢1,000.00 which was independent of the country's national income and 10% which was dependent of the country's national income. Given these data on Ghana…arrow_forwardAssume you are the Minister of Finance and Economic Planning for Ghana, in charge of Fiscal Policy. The Research Director of the Ministry brought you the following data on Ghana for the previous fiscal year, 2021. An examination of the data reveals that, during the fiscal year 2021, households in Ghana saved 20% of their disposable income (Y) and spent the rest on consumption. In addition, GH¢5,000.00 was spent on Consumption expenditure (C), which is independent of income and Gross Private Investment (I) was GH¢7,000.00. Total Government expenditure (G) which stood at GHc8,000.00 was supposed to be financed by a lump sum tax of GH¢2,000.00 (independent of income) and a proportional tax rate of 25% of national income. Exports (X) stood at GH¢ 2,500.00. In addition, the country's import (M) during the previous fiscal year comprises of GH$1,000.00 which was independent of the country's national income and 10% which was dependent of the country's national income. Given these data on Ghana…arrow_forwardIn a Keynesian cross diagram, if the government decreases the tax rate, or makes the leakage of taxation less a) the aggregate expenditure function will shift to the left, but its slope will not change b) the aggregate expenditure function will shift to the right, but its slope will not change c) the slope of the aggregate expenditure function will increase and increases the point at which it crosses the 45 degree line where Aggregate Output is equal to Aggregate Expenditures d) the slope of the aggregate expenditure function will decreasearrow_forward
- Use the Keynesian Model to answer this set of questions. Suppose that in the economy under consideration the consumption function can be written as C=200+.8(Y-T). Furthermore, you know that taxes are autonomous and equal to $10. Now, suppose that investment spending is equal to $50 at every level of disposable income and government spending is constant and equal to $100 at every level of disposable income, suppose that (X-M) is constant and equal to $20 at every level of disposable income. (a)Draw a graph of the consumption function with respect to disposable income. Measure/show consumption spending on the vertical axis and disposable income on the horizontal axis (b) Calculate equilibrium national income Y, from the information given. (c) From the information given above is the government running a deficit or surplus budget? Explain why. (d) Full employment output in this economy (Y) is equal to $2000 what do you predict is happening to inventories if the full employment level of…arrow_forwardIn the country of Arcadia, the minimum amount of consumption spending that will occur in a given year is $50- that is, no matter what level of income households have, the aggregate amount of consumption spending in the economy will be at least $50. In addition, for every extra dollar of national income, consumption spending will increase by $0.75. (Note: For the entirety of this problem, assume that Taxes = trans fers = 0, and the aggregate price level in Arcadia is fixed.) a. What is the marginal propensity to consume in Arcadia? [TYPE YOUR ANSWER BELOW] b. Write out the consumption function for the Arcadian economy. [TYPE YOUR ANSWER BELOW]arrow_forwardQ.3.2 Explain, using the AD-AS model, how the South African Government can use fiscal policy as a tool to recover from the negative effects of this COVID-19 pandemic. Your answer must include the following: The description of the type of fiscal policy required; An explanation of how the implementation of this tool will work their way through the economy to achieve the desired effect; The AD-AS graph showing the implications of your recommendations.arrow_forward
- Please solvearrow_forwardConsider the following income/expenditure diagram in the simple Keynesian model. If taxes, T, were increased, then Group of answer choices A) The Y = C+S+T line would shift to the right, and equilibrium Y would increase. B) the C+I+G line would shift downward, and equilibrium Y would decrease. C) The Y = C+S+T line would shift to the left, and equilibrium Y would decrease. D) neither of the lines would shift, and equilibrium Y would stay the same. E) the C+I+G line would shift upward, and equilibrium Y would increase.arrow_forwardThe chart below gives the data necessary to make a Keynesian cross diagram. Assume that the tax rate is 0.4 of national income, the MPC out of after-tax income is 0.9, investment is 58, government spending is 60, exports are 40, and imports are 0.1 of after-tax income. Alt Text: This chart contains the following columns: National Income, After-tax income, Consumption, I+G+X, Minus Imports, and Aggregate Expenditures. The National Income Column contains the following values for each of the following rows: 100, 200, 300, 400, 500, and 600. The only other value provided is the consumption, 104, for national income, 100. What does consumption equal when income equals 600? Group of answer choices a. 324 b. 374 c. 540 d. 104arrow_forward
- The chart below gives the data necessary to make a Keynesian cross diagram. Assume that the tax rate is 0.4 of national income, the MPC out of after-tax income is 0.9, investment is 58, government spending is 60, exports are 40, and imports are 0.1 of after-tax income. Alt Text: This chart contains the following columns: National Income, After-tax income, Consumption, I+G+X, Minus Imports, and Aggregate Expenditures. The National Income Column contains the following values for each of the following rows: 100, 200, 300, 400, 500, and 600. The only other value provided is the consumption, 104, for national income, 100. What is the equilibrium level of national income for this economy? A) Y=200 B) Y=400 C) Y=300 D) Y=500arrow_forwardConsider a simple Keynesian income-spending model of an economy described by the following equations 1. C= 250 + 0.75Yd TR = 200 T = 0.1Y 1=250 %3D G= 600 X = 350 %3D M=0.15Y (a) Calculate the equilibrium income level. (b) Sketch this equilibrium position using a two-dimensional graph. If potential GDP is 3,570 what is the size of the output gap? If public sector spending on goods and services is increased by 50, what is the new equilibrium level of income? How much should public spending have been increased by in order to have closed the output gap? (c) [All calculations to one decimal point. You must report your calculations.] MacBook Air 888 000 F1 F2 F3 F4 FS F7 F10 £ # @ € 2 $ % & 3 4 5 6 7 8 %3D Q E R Y A S F V alt cmd cmd Varrow_forwardIn the Keynesian-cross model, if the MPC equals 0.75, then a $3 billion decrease in taxes increases planned expenditures by and increases the equilibrium level of income by $3 billion; $9 billion $2.25 billion; $9 billion $2.25 billion; $2.25 billion $3 billion; $3 billionarrow_forward
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