Economics For Today
10th Edition
ISBN: 9781337613040
Author: Tucker
Publisher: Cengage Learning
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Question
Chapter 21, Problem 6SQ
To determine
The change in the government spending required to bring back full employment.
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What is the eventual effect on real GDP if the government
increases its purchases of goods and services by $60,000?
Assume the marginal propensity to consume (MPC) is 0.75.
What is the eventual effect on real GDP if the government,
instead of changing its spending, increases transfers by
$60,000? Assume the MPC has not changed.
An increase in government transfers or taxes, as opposed
to an increase in government purchases of goods and
services, will result in
O no change to real GDP.
O a smaller eventual effect on real GDP.
a larger eventual effect on real GDP.
O an identical eventual effect on real GDP.
A country is in the midst of a recession with a real GDP estimated to be $1.8 million below potential GDP. The governement's policy analyss believe the current value of the marginal propensity to consume (MPC) is 0.90. (Please answer all parts)
a. If the government wants real GDP to equal potential GDP, by how much should it increase governement spending? Alternatively, by how much should it reduce taxes?
b. Suppose that during the recession people have become less confident and decide they will spend only 50% of any additional income. In this case, if the governement increases spending by the amount calculated in part A, will real GDP end up less than , greater than or equal to potential GDP? by how much?
c. With the same decrese in consumer spending as described in part B, if the governement decreases taxes by the amount calculated in part A, will real GDP end up less than, greater than or equal topotential GDP? by how much?
d. Why is it difficult for the governement to predict…
Actual output is $2,000, potential output is $2,500, and the marginal propensity to consume (MPC) is 0.8. Which will return the economy to potential output? Increase taxes by $125. Increase government spending by $500. Decrease taxes by $125. Increase government spending by $125.
Chapter 21 Solutions
Economics For Today
Ch. 21.3 - Prob. 1YTECh. 21 - Prob. 1SQPCh. 21 - Prob. 2SQPCh. 21 - Prob. 3SQPCh. 21 - Prob. 4SQPCh. 21 - Prob. 5SQPCh. 21 - Prob. 6SQPCh. 21 - Prob. 7SQPCh. 21 - Prob. 8SQPCh. 21 - Prob. 9SQP
Ch. 21 - Prob. 10SQPCh. 21 - Prob. 11SQPCh. 21 - Prob. 1SQCh. 21 - Prob. 2SQCh. 21 - Prob. 3SQCh. 21 - Prob. 4SQCh. 21 - Prob. 5SQCh. 21 - Prob. 6SQCh. 21 - Mathematically, the value of the tax multiplier in...Ch. 21 - Prob. 8SQCh. 21 - Prob. 9SQCh. 21 - Prob. 10SQCh. 21 - Prob. 11SQCh. 21 - Prob. 12SQCh. 21 - Prob. 13SQCh. 21 - Prob. 14SQCh. 21 - Prob. 15SQCh. 21 - Prob. 16SQCh. 21 - Prob. 17SQCh. 21 - Prob. 18SQCh. 21 - Prob. 19SQCh. 21 - Prob. 20SQ
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