Determine the effect of the following events would on the aggregate demand (AD) curve whether shifting AD to the right (R) or to the left (L). Then indicate reasons why relating to the question 3. Think graphically! (a) After a budget surplus, Congress moves to cut personal income taxes. This will shift AD to the ) because ( increase, decrease ) in consumer spending. (b) A boost in research and development by computer companies produces more powerful and efficient computers and equipment. This will shift AD to the (__ ) because ( increase, decrease ) in spending. (c) Income rises in several countries that trade heavily with the U.S. This will shift AD to the because ( increase, decrease ) in spending. What if prices fall across several industries? Then AD curve will (shift outward, shift inward, not shift ). This is because prices ( are, are not ) a component of AD. Rather, a fall in prices will cause a movement ( upward, downward ) along the AD curve.

Determine the effect of the following events would on the aggregate demand (AD) curve whether shifting AD to the right (R) or to the left (L). Then indicate reasons why relating to the question 3. Think graphically! (a) After a budget surplus, Congress moves to cut personal income taxes. This will shift AD to the ) because ( increase, decrease ) in consumer spending. (b) A boost in research and development by computer companies produces more powerful and efficient computers and equipment. This will shift AD to the (__ ) because ( increase, decrease ) in spending. (c) Income rises in several countries that trade heavily with the U.S. This will shift AD to the because ( increase, decrease ) in spending. What if prices fall across several industries? Then AD curve will (shift outward, shift inward, not shift ). This is because prices ( are, are not ) a component of AD. Rather, a fall in prices will cause a movement ( upward, downward ) along the AD curve.

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 1.8P

See similar textbooks

Similar questions

1. Suppose that the U.S. government increases its expenditure on highways and bridges by $100 billion. Explain the effect that this expenditure would have on aggregate demand and real GDP.
11. How do lower taxes affect aggregate demand? A) They increase disposable income, consumption, and aggregate demand. B) They reduce disposable income, consumption, and aggregate demand. C) They decrease corporate investment and aggregate demand. D) They increase aggregate supply and thus increase aggregate demand as well 12. Full-employment GDP is also known as A) realized GDP. B) potential GDP. C) politico-economic GDP. D) balanced-budget GDP.
3. Suppose an economy had aggregate demand components with the following relationships: Consumption Spending, C-140 +0.60*(DY) Investment Spending, I-25 +0.15"Y Government Spending, G-0 Net Export Spending, X=0 Tax Collections, Tx = 0 a. What is the equilibrium income for this economy (Show your work)? b. If the Government decided to Increase G spending by 6, what would be the new equilibrium income for this economy (Show your work)? Page 2 bed tooing c. If instead the Government decided to Reduce Tx (taxes) by 10 (i.e., send checks to people), what would be the new equilibrium income for this economy (Show your work)? d. If instead the Government decided to Increase G spending and Increase Tx (taxes) by 20, what would be the new equilibrium income for this economy (Show your work)?
1. Draw a graph to illustrate the desired aggregate expenditures of an economy whose participants have the following spending plans: C= $10 + 0.8Y I= $20 G= $30 X-M = $10 (a) What is the value of equilibrium output? (b) Assuming that the full-employment level of output is $300, what kind of gap exists and how large is it? Identify the gap on the graph. (c) How much are consumers saving at full employment?
5. Fiscal pollcy, the money market, and aggregate demand Suppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (AD1). Suppose now that the government increases its purchases by $2.5 billion. / Tools Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD,) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (ADs) is parallel to ADj. You can see the slope of ADi by selecting it on the following graph. Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on the changes made to the money market in the previous scenario, the new interest rate causes the level of investment spending to _____ by____ A-z T Tips Tips Taking the multiplier effect into account, the…
Explanation it correctly and details Q)Suppose that economists observe than an increase in government spending of $6 billion raises total demand for goods and services by $16 billion. (a) If these economists ignore the possibility of crowding out, what would they estimate the marginal propensity to consume (MPC) to be? (b) Now suppose the economists allow for crowding out. Would their new estimate of the MPC be larger or smaller than the initial level? Explain your answer.
pls answer urgent all question Q1,a,b,c . Q1-Suppose the government reduces taxes by $20 billion, that there is no crowding out, and that the marginal propensity to consume is ¾. a. What is the initial effect of the tax reduction on aggregate demand? b. What additional effects follow this initial effect? What is the total effect of the tax cut on aggregate demand? c.How does the total effect of this $40billion tax cut compare to the total effect of a $40 billion in governmentpurchases? Why?
QUESTION 3 Give a hypothetical numerical example to show the relationship between the marginal propensity to consume (MPC) and the multiplier (m)? a. b. Considering both the simple Keynesian and the aggregate demand-supply frameworks, if households as a group experience a decrease in wealth at a given price level, what happen to Total Expenditure (TE), Aggreggate Demand (AD) and Real GDP. Illustrate and explain the change using a suitable graph.
2. Consider an economy where aggregate demand AD consists of aggregate con- 1000 and government = sumption C 10+ 0.8Y, aggregate investment I spending G = 800. (a) = (c) (d) What is aggregate demand if aggregate income/output is 10,000? Why is the economy not in equilibrium in that state? Calculate the goods market equilibrium for this economy. (b) Assume that the government increases spending by 20%. Calculate the new goods market equilibrium. What is the multiplier for the change in government spending? Assume now that the country starts trading globally and has Exports and Imports. Assume that imports are given by Im = n Y, with n being the marginal propensity to import. (e) Explain why - with exports and imports - a increase in government spending (e.g., 20%) results in a smaller change in aggregate demand/income in equilibrium than without exports and imports. (You do not have to calculate the new equilibrium.)
22. Suppose economists observe that an increase in government spending of $10 billion raises the total demand for goods and services by $50 billion. What is the multiplier effect in this case?
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 Suppose there is some hypothetical closed economy in which households spend $0.80 of each additional dollar they earn and save the remaining $0.20. The marginal propensity to consume (MPC) for this economy is Suppose the government in this economy decides to decrease government purchases by $300 billion. The decrease in government spending will lead to a decrease in income, creating an initial change in consumption equal to This decreases income yet again, leading to a second change in consumption equal to The total change in demand resulting from the initial change in government spending is and the spending multiplier for this economy is The following graph shows the aggregate demand curve (AD₁) 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…