Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 18.10, Problem 2ST
To determine
Reason for economist who believes that the government spending multiplier is larger than the tax multiplier
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According to the standard textbook Keynesian analysis, which is greater: the tax multiplier or the government spending multiplier? Explain the reasoning behind this relationship.
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According to Keynesian economics, what impact would a balanced budget amendment to the constuition requiring the federal government to balance its budget annually have on the economy?
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- How would a Keynesian Economist use Fiscal Policy to fight a Recession? Please do not write about Monetary Policy here, only Fiscal Policy.arrow_forwardDiscuss three reasons why the use of fiscal policy to stabilize the economy is more complicated than suggested by the basic Keynesian model.arrow_forwardUsing the concept in Keynesian economics, which one of the following may not be an effective fiscal policy when there is inflation? a) increasing aggregate demand b) increasing corporate taxes. c) increasing personal taxes. d) decreasing government purchases.arrow_forward
- Suppose we have the following information for the simple (fixed r, fixed P, fixed W) Keynesian model. C = 400 + 0.8 I = 310 G = 140 = 400 + 0.8 (Y - T) T = 200, where C is the consumption function, (Y - T) is disposable income, I is investment, G is government spending, and T is taxes. What can you say about the government's budget situation? (Hint: Think about what “G” and “T” stand for.) Group of answer choices A) There is a budget surplus. B) There is a budget deficit. C) None of the other options. D) We cannot say anything about the government budget. E) The budget is balanced.arrow_forwardConsider two standard Keynesian models. In Model 1, there are two types of consumers, Type A, who have low marginal propensities to consume, and Type B, who have high marginal propensities to consume. In Model 2, there are only Type B consumers. Then, an increase in the exogenous government purchases would lead to higher output in Model 1 than in Model 2. Answer true or false. Please briefly explain your answer.arrow_forwardAccording to the classical macroeconomic model, expansionary fiscal policy has an inflationary effect True or falsearrow_forward
- If the government were to implement one of the policies selected above, which curve will shift? Group of answer choices (A) the AD curve (B) the LRAS curve (C) the SRAS curvearrow_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_forwardConsider the Keynesian Cross model. If the fiscal multiplier equals 2, and the government decides to increase government purchases by 100, by how much would equilibrium output increase?arrow_forward
- Suppose we have the following information for the simple (fixed r, fixed P, fixed W) Keynesian model. C = 400 + 0.8 I = 310 G = 140 = 400 + 0.8 (Y - T) T = 200, where C is the consumption function, (Y - T) is disposable income, I is investment, G is government spending, and T is taxes If government spending increased by $80, equilibrium Y would Group of answer choices A) increase by $400. B) decrease by $160. C) increase by $80. D) increase by $320. E) increase by approximately $106.67.arrow_forwardConsider a Keynesian model but where investment (just like consumption) is increasing in aggregate income, e.g., because investment depends on business cash flow. Now that investment depends on aggregate income, a fiscal stimulus has more effect on equilibrium output.Answer true, false, or uncertain. Please briefly explain your answerarrow_forwardQuestion 23 Consider two standard Keynesian models. In Model 1, there are two types of consumers, Type A, who have low marginal propensities to consume, and Type B, who have high marginal propensities to consume. In Model 2, there are only Type B consumers. Then, an increase in the exogenous government purchases would lead to higher output in Model 1 than in Model 2. Answer True or False. Remember to include your explanation.arrow_forward
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