12. What factors can lead to an increase in the size of the expenditure multiplier? An increase in the consumption tax rate from 5% (of consumption) to 10%. All of the other options. An increase in the share of consumption expenditure that is spent on purchasing imported goods from 5% to 8%. why this A reduction in the income tax rate from 30% (of income) to 20%. 13 correct

12. What factors can lead to an increase in the size of the expenditure multiplier? An increase in the consumption tax rate from 5% (of consumption) to 10%. All of the other options. An increase in the share of consumption expenditure that is spent on purchasing imported goods from 5% to 8%. why this A reduction in the income tax rate from 30% (of income) to 20%. 13 correct

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter9: Aggregate Demand

Section: Chapter Questions

Problem 5.12P

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Figure 3-3 45° Planned Expenditure 200 + 0.75Y 45 Income (Y) In the figure above: a. Find the equilibrium GDP. What happens to the left of that equilibrium? What happens to the right? b. When income is $1,000, what is the unplanned inventory? c. What is the GDP multiplier? d. What is the tax multiplier? e. How much should government expenditures increase if the government wants to increase GDP from the equilibrium level found at point a) to 1,000? f. How much should taxes decrease if the government wants to increase GDP from the equilibrium level found at point a) to 1,000? Planned Expenditure
5. The multiplier effect of a change in government purchases
Figure 8-23. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. 6 on4m21 3 Tax Revenue B Tax Size Refer to Figure 8-23. If the economy is at point A on the curve, then a small increase in the tax rate will O increase the deadweight loss of the tax and increase tax revenue. O increase the deadweight loss of the tax and decrease tax revenue. decrease the deadweight loss of the tax and increase tax revenue. O decrease the deadweight loss of the tax and decrease tax revenue.
4. Given this diagram; what is the equilibrium level of income? 5. Given this diagram; what is the level of "autonomous spending"? 6. Given this diagram, what is the simple income multiplier?
10. A decrease in Federal government taxes would: O. decrease in consumption and savings O. decrease transfers and government purchases O. increase in consumption and savings O. decrease imports
1. The government expenditure multiplier is the effect of a change in government expenditure (G) on goods and services: a. An increase in aggregate expenditure increases aggregate demand (AD), which increases real GDP, which induces an increase in consumption expenditure (C), and which further increases aggregate demand (AD). b. An increase in aggregate expenditure increases aggregate supply (AS), which increases real GDP, which induces an increase in consumption expenditure (C), and which further increases aggregate supply (AS). c. An increase in aggregate expenditure decreases aggregate demand (AD), which decreases real GDP, which induces an decrease in consumption expenditure (C), and which further decreases aggregate demand (AD). d. An increase in aggregate expenditure decreases aggregate supply (AS), which decreases real GDP, which induces an decrease in consumption expenditure (C), and which further decreases aggregate supply (AS). 2. How do banks create money? Group of…
b. Using the model from this chapter, explain the effect on GDP from an increase in G by $5 billion. An increase in spending by $5 billion will add A. directly to Eisposable income by this amount and cause an increase in national income equal to less than $5 billion due to the multiplier effect. O B. directly to aggregate demand by this amount and lead to an eventual change in national income equal to $5 billion times the simple multiplier. O C. indirectly to aggregate demand and cause an eventual change in national income equal to $5 billion. OD. indirectly to disposable income, only a fraction of which (determined by the MPC) will then be spent, ie. national income will change by less than $5 billion.
5. Expenditure Gaps The following graph shows the planned expenditure line (AE) for an economy where current equilibrium income is $350 billion and full-employment income is $100 billion. REAL EXPENDITURE (Billions of dollars) 700 600 500 400 300 200 100 Full-Employment Income 0 0 100 200 400 500 INCOME (Billions of dollars) 300 The economy is experiencing would require a $ 45-degree line billion 600 PE 700 PE ? with the absolute value of the gap equal to $ in government spending. Thus the value of the multiplier for this economy is billion. Closing the income gap On the graph, shift the PE line to show the change in the planned expenditure line necessary to close the income gap.
3. A fall in the income tax rate will O lower the multiplier and lower equilibrium income. raise the multiplier and lower equilibrium income. lower the multiplier and raise equilibrium income. raise the multiplier and raise equilibrium income.
selecting it on the graph. PRICE LEVEL 140 135 130 6 120 115 110 106 100 AD₁ 1 5 OUTPUT (Trillions of dollars) 7 AD₂ @
4. The multiplier effect of a change in government purchases Consider a hypothetical closed economy in which households spend $0.60 of each additional dollar they earn and save the remaining $0.40. The marginal propensity to consume (MPC) for this economy is and the spending multiplier for this economy is Suppose the government in this economy decides to increase government purchases by $400 billion. The increase In government purchases will lead to an increase in income, generating an initial change in consumption equal to This increases income yet again, causing a second change in consumption equal to . The total change in demand resulting from the initial change in government spending Is The following graph shows the aggregate demand curve (AD¡) for this economy before the change in government spending. Use the green line (triangle symbol) to plot the new aggregate demand curve (AD2) after the multiplier effect takes place. For simplicity, assume that there is no "crowding out."…
4. (a) If an initial increase in investment of $3 billion results in a $4.5 billion increase in equilibrium real output, what is the size of the spending multiplier? (b) Calculate the MPW for this example.