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 30, Problem 5.1P
Sub part (a):
To determine
Effects on the multiplier.
Sub part (b):
To determine
Effect on multiplier.
Sub part (c):
To determine
Effect of multiplier on tax rebate.
Sub part (d):
To determine
Effect of multiplier on decreases in government spending.
Sub part (e):
To determine
Effect of multiplier on progressive income tax.
Sub part (f):
To determine
Effect of multiplier on
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Students have asked these similar questions
Which of the following statements best describes the multiplier effect in economics?
A. The process of reducing government spending to stimulate economic growth.
B. An increase in consumer saving when government expenditure decreases.
c. A phenomenon where an initial increase in spending leads to a more significant overall increase in
economic output.
D. The concept of a fixed relationship between inflation and unemployment rates.
Which best describes why the multiplier exists?
When people spend money, that money ends up in the pockets or bank accounts of other people or organizations, who
then use that money in some way.
The multiplier exists because money spent today is always more valuable than money spent in the future, due to
inflation and interest rates.
When people see other people spending money, they know that the economy is about to improve, leading them to spend
more money.
When people see the government spending more money, they realize that the government thinks that prices are low;
thus, they believe it is a good time to buy things.
Pretend 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.
Chapter 30 Solutions
Principles of Economics (12th Edition)
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Similar questions
- How does an increase in tax influence the size of the multiplierarrow_forwardWhat is the multiplier effect in economics? A. The tendency of consumers to save rather than spend B. The tendency of firms to reduce production during a recession C. The amplification of changes in spending through the economy D. The reduction of government spending to control inflationarrow_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
- jon was given a $2000 stimulus check. He will spend 75% of his money(which is 1500$). The next person will spend 75% of the 1500$ and so on and so forth. 1)How much total expenditure will result from the 2000$ stim check? 2)calculate the value of the multiplier.arrow_forwardWhy would a higher tax rate lower the government purchases multiplier? What does the tax rate have to do with the government purchases multiplier?arrow_forwardSuppose that Kim K decides to spend $30,000 on an American‑made purse instead of donating it to Haitian earthquake relief. Assume that the multiplier is 1.91.9. How much will GDP rise when Kim K buys her purse according to the multiplier effect? $$ Buying the purse increases America's GDP donating the money to Haitian earthquake relief. Suppose she instead donated to tornado relief in Joplin, MO. Buying the purse increases GDP spending on tornado relief.arrow_forward
- Spending Round by Round Complete the following questions. 1. Assume the MPC is 0.75. What is the value of the multiplier? What is the MPS? What would need to happen to make the multiplier larger? 2. Assume investment spending increases by $20 billion and the MPC is 0.75. Calculate the first through the fourth rounds of spending in the economy. 3. Assume investment spending increases by $20 billion and the MPC is 0.75. Calculate the total change in GDP arising from this increase in investment spending.arrow_forwardWhich of the following statements are correct? The introduction of government spending increases the size of the multiplier. The introduction of taxes increases the size of the multiplier. The introduction of taxes reduces the slope of the consumption function. Select one: A. A B. None of the statements is correct. C. C D. Barrow_forwardSuppose government purchases increase by 10 billion dollars, and as a result, real GDP increases by 15 billion dollars. Calculate the multiplier. Explain why the multiplier is generally greater than 1.arrow_forward
- For each of the following, please explain each step and show it in the graph! b. The Marginal Propensity to Consume (MPC) is 0,8 and the government wants total spending to increase by $40 Billion. How much the multiplier and initial spending must the government do to achieve the goal? (Assume economy is at full employment and economist ignore possibility of crowding out effect)arrow_forwardWhat is the multiplier effect? The multiplier is simply the ratio of the change in (r spending. Multiplying the initial change in spending by the multiplier gives you the amount of change in real GDP. G ) to the initial change in The multiplier effect can work in a positive or a negative direction. An initial increase in spending will result in a (smaller, larger) increase in real GDP, and an initial decrease in spending will result in a larger (increase, decrease ) in real GDP. The multiplier magnifies the fluctuations in economic activity initiated by changes in investment spending, net exports, government spending, or consumption spending. The multiplier is related to the marginal propensities. The MPC is (directly, inversely ) related to the size of the multiplier. The MPS is (directly, inversely ) related to the size of the multiplier. What will multiplier and MPS be when the MPC is .9, and 0.5? MPC MPS Multiplier .9 .5 How much of a change in GDP will result if firms increase…arrow_forwardWorking with Multipliers Help with the following two exercises. 1. Assume the MPC is 0.70 and the government increases spending on public school programs by $20 billion. What is the value of the initial impact on real GDP? What is the value of the total impact on real GDP? 2. Assume the MPC is 0.75 and policymakers have targeted real GDP to decrease by $300 billion. By how much must taxes be increased to achieve this goal?arrow_forward
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