Government spending multiplier.

Question

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Answer 1

Question

Chapter 9, Problem 2.4P

Subpart (a):

To determine

Government spending multiplier.

Subpart (a):

Expert Solution

Explanation of Solution

The government spending multiplier is calculated as follows:

Govt. spending multiplier=1MPS=10.1=10

The government spending multiplier is 10.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (b):

To determine

Government spending multiplier.

Subpart (b):

Expert Solution

Explanation of Solution

The government spending multiplier is calculated as follows:

Govt. spending multiplier=11−MPC=11−0.6=10.4=2.5

The government spending multiplier is 2.5.

Economics Concept Introduction

Concept introduction:

Marginal propensity to consume (MPC): Marginal propensity to consume refers to the sensitivity of change in the consumption level due to the changes occurred in the income level.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (c):

To determine

Government spending multiplier.

Subpart (c):

Expert Solution

Explanation of Solution

The government spending multiplier is calculated as follows:

Govt. spending multiplier=1MPS=10.25=4

The government spending multiplier is 4.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (d):

To determine

Tax multiplier.

Subpart (d):

Expert Solution

Explanation of Solution

The tax multiplier is calculated as follows:

Tax multiplier=−MPC1−MPC=−0.51−0.5=−0.50.5=−1

The tax spending multiplier is -1.

Economics Concept Introduction

Concept introduction:

Marginal propensity to consume (MPC): Marginal propensity to consume refers to the sensitivity of change in the consumption level due to the changes occurred in the income level.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (e):

To determine

Tax multiplier.

Subpart (e):

Expert Solution

Explanation of Solution

The tax multiplier is calculated as follows:

Tax multiplier=−1−MPSMPS=−1−0.20.2=−0.80.2=−4

The tax spending multiplier is -4.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (f):

To determine

Tax multiplier.

Subpart (f):

Expert Solution

Explanation of Solution

The MPS is calculated as follows:

MPS=1Govt. spending multiplier=18=0.125

The MPS is 0.125.

The tax multiplier is calculated as follows:

The tax spending multiplier is -7.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (g):

To determine

Government spending multiplier.

Subpart (g):

Expert Solution

Explanation of Solution

The MPS is calculated using tax multiplier as follows:

Tax multiplier=−1−MPSMPS−5=−1−MPSMPS5MPS=1−MPSMPS=16=0.167

MPS is 0.167.

The government spending multiplier is calculated as follows:

Govt. spending multiplier=1MPS=10.167=6

The government spending multiplier is 6.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (h):

To determine

Applying balanced budget multiplier.

Subpart (h):

Expert Solution

Explanation of Solution

If government purchases and taxes increases by $500 billion simultaneously, the output also increases by $500 billion since the balanced budget multiplier effect of 1 is applicable in this case.

Economics Concept Introduction

Concept introduction:

Balanced Budget Multiplier: Balanced Budget Multiplier refers to the ratio of change in the equilibrium GDP to the change in government spending where the government spend is offset by change in taxes.

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Answer 2

Question

Chapter 9, Problem 2.4P

Subpart (a):

To determine

Government spending multiplier.

Subpart (a):

Expert Solution

Explanation of Solution

The government spending multiplier is calculated as follows:

Govt. spending multiplier=1MPS=10.1=10

The government spending multiplier is 10.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (b):

To determine

Government spending multiplier.

Subpart (b):

Expert Solution

Explanation of Solution

The government spending multiplier is calculated as follows:

Govt. spending multiplier=11−MPC=11−0.6=10.4=2.5

The government spending multiplier is 2.5.

Economics Concept Introduction

Concept introduction:

Marginal propensity to consume (MPC): Marginal propensity to consume refers to the sensitivity of change in the consumption level due to the changes occurred in the income level.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (c):

To determine

Government spending multiplier.

Subpart (c):

Expert Solution

Explanation of Solution

The government spending multiplier is calculated as follows:

Govt. spending multiplier=1MPS=10.25=4

The government spending multiplier is 4.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (d):

To determine

Tax multiplier.

Subpart (d):

Expert Solution

Explanation of Solution

The tax multiplier is calculated as follows:

Tax multiplier=−MPC1−MPC=−0.51−0.5=−0.50.5=−1

The tax spending multiplier is -1.

Economics Concept Introduction

Concept introduction:

Marginal propensity to consume (MPC): Marginal propensity to consume refers to the sensitivity of change in the consumption level due to the changes occurred in the income level.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (e):

To determine

Tax multiplier.

Subpart (e):

Expert Solution

Explanation of Solution

The tax multiplier is calculated as follows:

Tax multiplier=−1−MPSMPS=−1−0.20.2=−0.80.2=−4

The tax spending multiplier is -4.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (f):

To determine

Tax multiplier.

Subpart (f):

Expert Solution

Explanation of Solution

The MPS is calculated as follows:

MPS=1Govt. spending multiplier=18=0.125

The MPS is 0.125.

The tax multiplier is calculated as follows:

The tax spending multiplier is -7.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (g):

To determine

Government spending multiplier.

Subpart (g):

Expert Solution

Explanation of Solution

The MPS is calculated using tax multiplier as follows:

Tax multiplier=−1−MPSMPS−5=−1−MPSMPS5MPS=1−MPSMPS=16=0.167

MPS is 0.167.

The government spending multiplier is calculated as follows:

Govt. spending multiplier=1MPS=10.167=6

The government spending multiplier is 6.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (h):

To determine

Applying balanced budget multiplier.

Subpart (h):

Expert Solution

Explanation of Solution

If government purchases and taxes increases by $500 billion simultaneously, the output also increases by $500 billion since the balanced budget multiplier effect of 1 is applicable in this case.

Economics Concept Introduction

Concept introduction:

Balanced Budget Multiplier: Balanced Budget Multiplier refers to the ratio of change in the equilibrium GDP to the change in government spending where the government spend is offset by change in taxes.

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Answer 3

Question

Chapter 9, Problem 2.4P

Subpart (a):

To determine

Government spending multiplier.

Subpart (a):

Expert Solution

Explanation of Solution

The government spending multiplier is calculated as follows:

Govt. spending multiplier=1MPS=10.1=10

The government spending multiplier is 10.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (b):

To determine

Government spending multiplier.

Subpart (b):

Expert Solution

Explanation of Solution

The government spending multiplier is calculated as follows:

Govt. spending multiplier=11−MPC=11−0.6=10.4=2.5

The government spending multiplier is 2.5.

Economics Concept Introduction

Concept introduction:

Marginal propensity to consume (MPC): Marginal propensity to consume refers to the sensitivity of change in the consumption level due to the changes occurred in the income level.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (c):

To determine

Government spending multiplier.

Subpart (c):

Expert Solution

Explanation of Solution

The government spending multiplier is calculated as follows:

Govt. spending multiplier=1MPS=10.25=4

The government spending multiplier is 4.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (d):

To determine

Tax multiplier.

Subpart (d):

Expert Solution

Explanation of Solution

The tax multiplier is calculated as follows:

Tax multiplier=−MPC1−MPC=−0.51−0.5=−0.50.5=−1

The tax spending multiplier is -1.

Economics Concept Introduction

Concept introduction:

Marginal propensity to consume (MPC): Marginal propensity to consume refers to the sensitivity of change in the consumption level due to the changes occurred in the income level.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (e):

To determine

Tax multiplier.

Subpart (e):

Expert Solution

Explanation of Solution

The tax multiplier is calculated as follows:

Tax multiplier=−1−MPSMPS=−1−0.20.2=−0.80.2=−4

The tax spending multiplier is -4.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (f):

To determine

Tax multiplier.

Subpart (f):

Expert Solution

Explanation of Solution

The MPS is calculated as follows:

MPS=1Govt. spending multiplier=18=0.125

The MPS is 0.125.

The tax multiplier is calculated as follows:

The tax spending multiplier is -7.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (g):

To determine

Government spending multiplier.

Subpart (g):

Expert Solution

Explanation of Solution

The MPS is calculated using tax multiplier as follows:

Tax multiplier=−1−MPSMPS−5=−1−MPSMPS5MPS=1−MPSMPS=16=0.167

MPS is 0.167.

The government spending multiplier is calculated as follows:

Govt. spending multiplier=1MPS=10.167=6

The government spending multiplier is 6.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (h):

To determine

Applying balanced budget multiplier.

Subpart (h):

Expert Solution

Explanation of Solution

If government purchases and taxes increases by $500 billion simultaneously, the output also increases by $500 billion since the balanced budget multiplier effect of 1 is applicable in this case.

Economics Concept Introduction

Concept introduction:

Balanced Budget Multiplier: Balanced Budget Multiplier refers to the ratio of change in the equilibrium GDP to the change in government spending where the government spend is offset by change in taxes.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 9, Problem 2.4P

Subpart (a):

To determine

Government spending multiplier.

Subpart (a):

Expert Solution

Explanation of Solution

The government spending multiplier is calculated as follows:

Govt. spending multiplier=1MPS=10.1=10

The government spending multiplier is 10.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (b):

To determine

Government spending multiplier.

Subpart (b):

Expert Solution

Explanation of Solution

The government spending multiplier is calculated as follows:

Govt. spending multiplier=11−MPC=11−0.6=10.4=2.5

The government spending multiplier is 2.5.

Economics Concept Introduction

Concept introduction:

Marginal propensity to consume (MPC): Marginal propensity to consume refers to the sensitivity of change in the consumption level due to the changes occurred in the income level.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (c):

To determine

Government spending multiplier.

Subpart (c):

Expert Solution

Explanation of Solution

The government spending multiplier is calculated as follows:

Govt. spending multiplier=1MPS=10.25=4

The government spending multiplier is 4.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (d):

To determine

Tax multiplier.

Subpart (d):

Expert Solution

Explanation of Solution

The tax multiplier is calculated as follows:

Tax multiplier=−MPC1−MPC=−0.51−0.5=−0.50.5=−1

The tax spending multiplier is -1.

Economics Concept Introduction

Concept introduction:

Marginal propensity to consume (MPC): Marginal propensity to consume refers to the sensitivity of change in the consumption level due to the changes occurred in the income level.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (e):

To determine

Tax multiplier.

Subpart (e):

Expert Solution

Explanation of Solution

The tax multiplier is calculated as follows:

Tax multiplier=−1−MPSMPS=−1−0.20.2=−0.80.2=−4

The tax spending multiplier is -4.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (f):

To determine

Tax multiplier.

Subpart (f):

Expert Solution

Explanation of Solution

The MPS is calculated as follows:

MPS=1Govt. spending multiplier=18=0.125

The MPS is 0.125.

The tax multiplier is calculated as follows:

The tax spending multiplier is -7.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (g):

To determine

Government spending multiplier.

Subpart (g):

Expert Solution

Explanation of Solution

The MPS is calculated using tax multiplier as follows:

Tax multiplier=−1−MPSMPS−5=−1−MPSMPS5MPS=1−MPSMPS=16=0.167

MPS is 0.167.

The government spending multiplier is calculated as follows:

Govt. spending multiplier=1MPS=10.167=6

The government spending multiplier is 6.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (h):

To determine

Applying balanced budget multiplier.

Subpart (h):

Expert Solution

Explanation of Solution

If government purchases and taxes increases by $500 billion simultaneously, the output also increases by $500 billion since the balanced budget multiplier effect of 1 is applicable in this case.

Economics Concept Introduction

Concept introduction:

Balanced Budget Multiplier: Balanced Budget Multiplier refers to the ratio of change in the equilibrium GDP to the change in government spending where the government spend is offset by change in taxes.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 9, Problem 2.4P

Subpart (a):

To determine

Government spending multiplier.

Subpart (a):

Expert Solution

Explanation of Solution

The government spending multiplier is calculated as follows:

Govt. spending multiplier=1MPS=10.1=10

The government spending multiplier is 10.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (b):

To determine

Government spending multiplier.

Subpart (b):

Expert Solution

Explanation of Solution

The government spending multiplier is calculated as follows:

Govt. spending multiplier=11−MPC=11−0.6=10.4=2.5

The government spending multiplier is 2.5.

Economics Concept Introduction

Concept introduction:

Marginal propensity to consume (MPC): Marginal propensity to consume refers to the sensitivity of change in the consumption level due to the changes occurred in the income level.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (c):

To determine

Government spending multiplier.

Subpart (c):

Expert Solution

Explanation of Solution

The government spending multiplier is calculated as follows:

Govt. spending multiplier=1MPS=10.25=4

The government spending multiplier is 4.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (d):

To determine

Tax multiplier.

Subpart (d):

Expert Solution

Explanation of Solution

The tax multiplier is calculated as follows:

Tax multiplier=−MPC1−MPC=−0.51−0.5=−0.50.5=−1

The tax spending multiplier is -1.

Economics Concept Introduction

Concept introduction:

Marginal propensity to consume (MPC): Marginal propensity to consume refers to the sensitivity of change in the consumption level due to the changes occurred in the income level.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (e):

To determine

Tax multiplier.

Subpart (e):

Expert Solution

Explanation of Solution

The tax multiplier is calculated as follows:

Tax multiplier=−1−MPSMPS=−1−0.20.2=−0.80.2=−4

The tax spending multiplier is -4.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (f):

To determine

Tax multiplier.

Subpart (f):

Expert Solution

Explanation of Solution

The MPS is calculated as follows:

MPS=1Govt. spending multiplier=18=0.125

The MPS is 0.125.

The tax multiplier is calculated as follows:

The tax spending multiplier is -7.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (g):

To determine

Government spending multiplier.

Subpart (g):

Expert Solution

Explanation of Solution

The MPS is calculated using tax multiplier as follows:

Tax multiplier=−1−MPSMPS−5=−1−MPSMPS5MPS=1−MPSMPS=16=0.167

MPS is 0.167.

The government spending multiplier is calculated as follows:

Govt. spending multiplier=1MPS=10.167=6

The government spending multiplier is 6.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Subpart (h):

To determine

Applying balanced budget multiplier.

Subpart (h):

Expert Solution

Explanation of Solution

If government purchases and taxes increases by $500 billion simultaneously, the output also increases by $500 billion since the balanced budget multiplier effect of 1 is applicable in this case.

Economics Concept Introduction

Concept introduction:

Balanced Budget Multiplier: Balanced Budget Multiplier refers to the ratio of change in the equilibrium GDP to the change in government spending where the government spend is offset by change in taxes.

Answer 6

Chapter 9, Problem 2.4P

Subpart (a):

To determine

Government spending multiplier.

Subpart (a):

Expert Solution

Explanation of Solution

The government spending multiplier is calculated as follows:

Govt. spending multiplier=1MPS=10.1=10

The government spending multiplier is 10.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Answer 7

Chapter 9, Problem 2.4P

Subpart (a):

To determine

Government spending multiplier.

Answer 8

Subpart (a):

Expert Solution

Explanation of Solution

The government spending multiplier is calculated as follows:

Govt. spending multiplier=1MPS=10.1=10

The government spending multiplier is 10.

Answer 9

Subpart (a):

Expert Solution

Answer 10

Subpart (a):

Expert Solution

Answer 11

Expert Solution

Answer 12

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Answer 13

Subpart (b):

To determine

Government spending multiplier.

Subpart (b):

Expert Solution

Explanation of Solution

The government spending multiplier is calculated as follows:

Govt. spending multiplier=11−MPC=11−0.6=10.4=2.5

The government spending multiplier is 2.5.

Economics Concept Introduction

Concept introduction:

Marginal propensity to consume (MPC): Marginal propensity to consume refers to the sensitivity of change in the consumption level due to the changes occurred in the income level.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Answer 14

Subpart (b):

To determine

Government spending multiplier.

Answer 15

Subpart (b):

Expert Solution

Explanation of Solution

The government spending multiplier is calculated as follows:

Govt. spending multiplier=11−MPC=11−0.6=10.4=2.5

The government spending multiplier is 2.5.

Answer 16

Subpart (b):

Expert Solution

Answer 17

Subpart (b):

Expert Solution

Answer 18

Expert Solution

Answer 19

Economics Concept Introduction

Concept introduction:

Marginal propensity to consume (MPC): Marginal propensity to consume refers to the sensitivity of change in the consumption level due to the changes occurred in the income level.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Answer 20

Subpart (c):

To determine

Government spending multiplier.

Subpart (c):

Expert Solution

Explanation of Solution

The government spending multiplier is calculated as follows:

Govt. spending multiplier=1MPS=10.25=4

The government spending multiplier is 4.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Answer 21

Subpart (c):

To determine

Government spending multiplier.

Answer 22

Subpart (c):

Expert Solution

Explanation of Solution

The government spending multiplier is calculated as follows:

Govt. spending multiplier=1MPS=10.25=4

The government spending multiplier is 4.

Answer 23

Subpart (c):

Expert Solution

Answer 24

Subpart (c):

Expert Solution

Answer 25

Expert Solution

Answer 26

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Answer 27

Subpart (d):

To determine

Tax multiplier.

Subpart (d):

Expert Solution

Explanation of Solution

The tax multiplier is calculated as follows:

Tax multiplier=−MPC1−MPC=−0.51−0.5=−0.50.5=−1

The tax spending multiplier is -1.

Economics Concept Introduction

Concept introduction:

Marginal propensity to consume (MPC): Marginal propensity to consume refers to the sensitivity of change in the consumption level due to the changes occurred in the income level.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Answer 28

Subpart (d):

To determine

Tax multiplier.

Answer 29

Subpart (d):

Expert Solution

Explanation of Solution

The tax multiplier is calculated as follows:

Tax multiplier=−MPC1−MPC=−0.51−0.5=−0.50.5=−1

The tax spending multiplier is -1.

Answer 30

Subpart (d):

Expert Solution

Answer 31

Subpart (d):

Expert Solution

Answer 32

Expert Solution

Answer 33

Economics Concept Introduction

Concept introduction:

Marginal propensity to consume (MPC): Marginal propensity to consume refers to the sensitivity of change in the consumption level due to the changes occurred in the income level.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Answer 34

Subpart (e):

To determine

Tax multiplier.

Subpart (e):

Expert Solution

Explanation of Solution

The tax multiplier is calculated as follows:

Tax multiplier=−1−MPSMPS=−1−0.20.2=−0.80.2=−4

The tax spending multiplier is -4.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Answer 35

Subpart (e):

To determine

Tax multiplier.

Answer 36

Subpart (e):

Expert Solution

Explanation of Solution

The tax multiplier is calculated as follows:

Tax multiplier=−1−MPSMPS=−1−0.20.2=−0.80.2=−4

The tax spending multiplier is -4.

Answer 37

Subpart (e):

Expert Solution

Answer 38

Subpart (e):

Expert Solution

Answer 39

Expert Solution

Answer 40

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Answer 41

Subpart (f):

To determine

Tax multiplier.

Subpart (f):

Expert Solution

Explanation of Solution

The MPS is calculated as follows:

MPS=1Govt. spending multiplier=18=0.125

The MPS is 0.125.

The tax multiplier is calculated as follows:

The tax spending multiplier is -7.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Answer 42

Subpart (f):

To determine

Tax multiplier.

Answer 43

Subpart (f):

Expert Solution

Explanation of Solution

The MPS is calculated as follows:

MPS=1Govt. spending multiplier=18=0.125

The MPS is 0.125.

The tax multiplier is calculated as follows:

The tax spending multiplier is -7.

Answer 44

Subpart (f):

Expert Solution

Answer 45

Subpart (f):

Expert Solution

Answer 46

Expert Solution

Answer 47

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Answer 48

Subpart (g):

To determine

Government spending multiplier.

Subpart (g):

Expert Solution

Explanation of Solution

The MPS is calculated using tax multiplier as follows:

Tax multiplier=−1−MPSMPS−5=−1−MPSMPS5MPS=1−MPSMPS=16=0.167

MPS is 0.167.

The government spending multiplier is calculated as follows:

Govt. spending multiplier=1MPS=10.167=6

The government spending multiplier is 6.

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Answer 49

Subpart (g):

To determine

Government spending multiplier.

Answer 50

Subpart (g):

Expert Solution

Explanation of Solution

The MPS is calculated using tax multiplier as follows:

Tax multiplier=−1−MPSMPS−5=−1−MPSMPS5MPS=1−MPSMPS=16=0.167

MPS is 0.167.

The government spending multiplier is calculated as follows:

Govt. spending multiplier=1MPS=10.167=6

The government spending multiplier is 6.

Answer 51

Subpart (g):

Expert Solution

Answer 52

Subpart (g):

Expert Solution

Answer 53

Expert Solution

Answer 54

Economics Concept Introduction

Concept introduction:

Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.

Multiplier: Multiplier refers to the ratio of change in the real GDP to the change in initial consumption at constant price rate.

Answer 55

Subpart (h):

To determine

Applying balanced budget multiplier.

Subpart (h):

Expert Solution

Explanation of Solution

If government purchases and taxes increases by $500 billion simultaneously, the output also increases by $500 billion since the balanced budget multiplier effect of 1 is applicable in this case.

Economics Concept Introduction

Concept introduction:

Balanced Budget Multiplier: Balanced Budget Multiplier refers to the ratio of change in the equilibrium GDP to the change in government spending where the government spend is offset by change in taxes.

Answer 56

Subpart (h):

To determine

Applying balanced budget multiplier.

Answer 57

Subpart (h):

Expert Solution

Explanation of Solution

If government purchases and taxes increases by $500 billion simultaneously, the output also increases by $500 billion since the balanced budget multiplier effect of 1 is applicable in this case.

Answer 58

Subpart (h):

Expert Solution

Answer 59

Subpart (h):

Expert Solution

Answer 60

Expert Solution

Answer 61

Economics Concept Introduction

Concept introduction:

Balanced Budget Multiplier: Balanced Budget Multiplier refers to the ratio of change in the equilibrium GDP to the change in government spending where the government spend is offset by change in taxes.