Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 24, Problem 2.5P
To determine
Balanced budget multiplier.
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How does an increase in tax influence the size of the multiplier
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1)How much total expenditure will result from the 2000$ stim check?
2)calculate the value of the multiplier.
How will the revenues for the bottom line with a budget of $3.4 trillion affect our economy?
Chapter 24 Solutions
Principles of Economics (12th Edition)
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- Suppose 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_forwardPretend you are a member of the Council of Economic Advisers and are trying to persuade the members of the House Appropriations Committee to purchase $100 billion worth of new materials, in part to stimulate the economy. Explain to the members how the multiplier process will work.arrow_forwardThere might be many factors (economic and non-economic) that affect the size of the multiplier. What are some that you think could influence its size? Which ones do you think would make it larger, and which are more likely to make it smaller?arrow_forward
- Suppose 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 0.67 and the tax rate is 16%. 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…arrow_forwardMy friend Marie decides to set aside $200 from her paycheck every month. How will this affect her demand curve? (You don't have to use specific numbers, just explain) When Marie sets aside money from her paycheck, this is the same thing as a decrease in her income. Remember that when income increases, the demand curve shifts outwards to reflect the increase in spending. In this case, Marie's demand curve will shift inwards as she tries to economize more than usual. She will buy fewer goods, even if the prices don't change. Illustrate in grapharrow_forwardSuppose there was a debate regarding how to spend $1 billion in newly found revenues in the budget. Suppose the most liberal Democrat suggests an increase to Food Stamp (SNAP) allotments. Suppose the most conservative Republican suggests an increase in defense spending. The Republican says that, on average, military spending does the most good, so more is better. The Democrat is arguing that the extra food purchased by the extra spending will increase well-being the most. What is going on here? A . Both are employing marginal analysis, just from different perspectives. B. Only the Democrat is using marginal analysis. C. Only the Republican is using marginal analysis. D. Neither are using marginal analysis.arrow_forward
- Why would a higher tax rate lower the government purchases multiplier? What does the tax rate have to do with the government purchases multiplier?arrow_forwardWhich of the following statements is TRUE? A. The spending multiplier is calculated as 1/MPC B. The proportion of any income that is spent rather than saved is called the spending multiplier C. MPC is always equal to MPS D. The value of the spending multiplier will increase if MPC increasesarrow_forwardFind out the value of the multiplier if the MPC is zero?arrow_forward
- Mathematically prove that balanced budget multiplier is one. Interpret itarrow_forwardTrue or False? Explain: The multiplier effect is likely to be greatest when the government spending is targeted at the poorest The poor will always spend most of the money they get as benefits as soon as possible Multiplier effect does not depend on who receives the money The richest people will spend a larger proportion of their money than the poorestarrow_forwardAgreement and disagreement among economists Suppose that Musashi, an economist from a business administration program in Georgia, and Rina, another economist from a nonprofit institution in the Midwest, are both guests on a popular science podcast. The host of the podcast is facilitating their debate over saving incentives. The following dialogue represents a portion of the transcript of their discussion: Rina: I think it's safe to say that, in general, the savings rate of households in today's economy is much lower than it really needs to be to sustain an improvement in living standards. Musashi: I think a switch from the income tax to a consumption tax would bring growth in living standards. Rina: You really think households would change their saving behavior enough in response to this to make a difference? Because I don't. The disagreement between these economists is most likely due to DIFFERENCES BETWEEN PERCEPTION VERSUS REALITY or DIFFERENCES IN SCIENTIFIC JUDGEMENTS…arrow_forward
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