ECNS 202 PRINTOUT
8th Edition
ISBN: 9781337096584
Author: Mankiw
Publisher: CENGAGE L
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Question
Chapter 21, Problem 4PA
To determine
Impact of tax cut.
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Consider two policies-a tax cut that will last for only one year, and a tax cut that is expected to be permanent. which policy will stimulate greater spending by consumers? which is policy will have the greater impact on aggregate demand? explain
What happens to the Aggregate Demand (AD) when there is an increase in Government purchases.
If there is an increase in government expenditures and an increase in taxes by an equal amount by how much will the
aggregate demand increase?
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- How can a reduction in Corporation Tax lead to supply side improvements in an economy?arrow_forwardThe Japanese government decides to stimulate the economy by increasing direct spending by $70 billion. If the final change in real GDP is $280 billion, what is Japanese consumers' marginal propensity to consume (MPC)? Please round your answer to two decimal places.arrow_forwardIn 2006, the U.S. economy experienced an inflationary gap when the economy was booming and the unemployment rate was low. Would you consider a tax increase in that period to be demand-side focused, supply-side focused or both? What would be the impact of this policy on the price level and the real GDP? Explain.arrow_forward
- Suppose actual real GDP is $13.37 trillion, potential real GDP is $12.33 trillion, and the marginal propensity to consume is 0.62. If we ignore price effects, by how many trillions of dollars should the government change its spending to fix the gap? (Round this to two digits after the decimal and enter this value as either a positive value or a negative value without the dollar sign.)arrow_forwardConsider two policies: a tax cut that will last for only one year and a tax cut that is expected to be permanent. True or False: A tax cut that is expected to be permanent will have a greater impact on aggregate demand than a tax cut that will last for only one year. True Falsearrow_forwardSuppose actual real GDP is $13.56 trillion, potential real GDP is $12.34 trillion, and the marginal propensity to consume is 0.74. If we ignore price effects, and if the government already decided to increase its spending by $1.90 trillion, by how many trillions of dollars should the government change its lump sum taxes to fix the gap? (Round this to two digits after the decimal and enter this value as either a positive value or a negative value without the dollar sign.)arrow_forward
- The graph shows an economy's aggregate supply and potential GDP. On the graph, draw an aggregate demand curve when the economy is at an above full-employment equilibrium. Label it AD . Draw a point at the above full-employment equilibrium. Draw a horizontal arrow at the equilibrium price level that shows the gap between actual real GDP and potential GDP. >>> Draw only the objects specified in the question.arrow_forwardConsider the graph at right showing an economy in recession. Aggregate demand is currently at AD. Equilibrium currently occurs at Eo. If aggregate demand was ADF, there would be full employment. Suppose the government engages in fiscal policy that results in full crowding out. Using the line drawing tool, draw the new demand curve that shows full crowding out. Carefully follow the instructions above, and only draw the required object. Price level Eo EF ADO F Real GDP per Year ($ trillions) SRASO ADF O Uarrow_forwardConsider an economy that is operating below the full-employment level of real GDP. What would be the effect of an increase in government spending on aggregate demand and real GDP?arrow_forward
- In February 2021, retail sales fell by 3.3% compared to January. What does the drop in retail sales indicate about how consumption has changed? Investment spending fell by 2.2% in February. How will these changes affect aggregate expenditures? How will equilibrium GDP be affected? How do you think the stimulus checks that many Americans will receive will affect consumption? How will that affect aggregate expenditures and GDP and employment? Do you expect the change in aggregate expenditures be temporary or permanent? Part of the stimulus package passed by Biden includes an extra $300 per week in unemployment benefits. Do you agree with the stimulus checks and additional $300 per week in unemployment benefits? Why or why not?arrow_forwardSuppose actual real GDP is $13.74 trillion, potential real GDP is $12.69 trillion, and the marginal propensity to consume is 0.6. If we ignore price effects, and if the government already decided to increase its spending by $1.61 trillion, by how many trillions of dollars should the government change its lump sum taxes to fix the gap? (Round this to two digits after the decimal and enter this value as either a positive value or a negative value without the dollar sign.) Correct Answer: 3.38 Please solve to get that same answerarrow_forwardExamine the following policies and determine which would decrease the level of aggregate demand. Decreasing in government spending and decreasing taxes Increasing investment and increasing government spending Increasing consumption and decreasing taxes Decreasing in government spending and increasing in taxesarrow_forward
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