Using the aggregate expenditures model, answer the questions below to show how government fiscal policy could eliminate either a recessionary expenditure gap or an inflationary expenditure gap. Aggregate expenditures (billions of dollars) 6000 5000 4000 3000 2000 1000 0 Show Transcribed Text 45° 1000 2000 3000 4000 5000 6000 Real GDP (billions of dollars) billion Full employment percent AE。 Show Transcribed Text Tools Suppose that a country has no public debt in year 1 but experiences a budget deficit of $40 billion in year 2, a budget surplus of $10 billion in year 3, and a budget deficit of $2 billion in year 4. Instructions: Enter your answers as a whole number. For the absolute size of the public debt, enter your answer as a positive number. a. What is the absolute size of its public debt in year 4? $ b. If its real GDP in year 4 is $104 billion, what is this country's public debt as a percentage of real GDP in year 4? + Gap Ć Ű billion Ĉ Assume that a hypothetical economy with an MPC of 0.9 is experiencing a severe recession. Instructions: In part a, round your answers to 1 decimal place. Enter your answers as a positive number. In part b, enter your answers as a whole number. a. By how much would government spending have to rise to shift the aggregate demand curve rightward by $40 billion? $ 4 billion How large a tax cut would be needed to achieve the same increase in aggregate demand? Tax cut = $ 4.44 billion b. Determine one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt. Increase government spending by $ Increase taxes by $ billion
Using the aggregate expenditures model, answer the questions below to show how government fiscal policy could eliminate either a recessionary expenditure gap or an inflationary expenditure gap. Aggregate expenditures (billions of dollars) 6000 5000 4000 3000 2000 1000 0 Show Transcribed Text 45° 1000 2000 3000 4000 5000 6000 Real GDP (billions of dollars) billion Full employment percent AE。 Show Transcribed Text Tools Suppose that a country has no public debt in year 1 but experiences a budget deficit of $40 billion in year 2, a budget surplus of $10 billion in year 3, and a budget deficit of $2 billion in year 4. Instructions: Enter your answers as a whole number. For the absolute size of the public debt, enter your answer as a positive number. a. What is the absolute size of its public debt in year 4? $ b. If its real GDP in year 4 is $104 billion, what is this country's public debt as a percentage of real GDP in year 4? + Gap Ć Ű billion Ĉ Assume that a hypothetical economy with an MPC of 0.9 is experiencing a severe recession. Instructions: In part a, round your answers to 1 decimal place. Enter your answers as a positive number. In part b, enter your answers as a whole number. a. By how much would government spending have to rise to shift the aggregate demand curve rightward by $40 billion? $ 4 billion How large a tax cut would be needed to achieve the same increase in aggregate demand? Tax cut = $ 4.44 billion b. Determine one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt. Increase government spending by $ Increase taxes by $ billion
Chapter24: Fiscal Policy
Section: Chapter Questions
Problem 5P
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Transcribed Image Text:Using the aggregate expenditures model, answer the questions below to show how government fiscal policy could eliminate either a
recessionary expenditure gap or an inflationary expenditure gap.
Aggregate expenditures (billions of dollars)
6000
5000
4000
3000
2000
1000
0
Show Transcribed Text
45°
1000 2000 3000 4000 5000 6000
Real GDP (billions of dollars)
billion
Full employment
percent
AE。
Show Transcribed Text
Tools
Suppose that a country has no public debt in year 1 but experiences a budget deficit of $40 billion in year 2, a budget surplus of $10
billion in year 3, and a budget deficit of $2 billion in year 4.
Instructions: Enter your answers as a whole number. For the absolute size of the public debt, enter your answer as a positive number.
a. What is the absolute size of its public debt in year 4?
$
b. If its real GDP in year 4 is $104 billion, what is this country's public debt as a percentage of real GDP in year 4?
+
Gap
Ć
Ű
billion
Ĉ
Assume that a hypothetical economy with an MPC of 0.9 is experiencing a severe recession.
Instructions: In part a, round your answers to 1 decimal place. Enter your answers as a positive number. In part b, enter your answers
as a whole number.
a. By how much would government spending have to rise to shift the aggregate demand curve rightward by $40 billion?
$
4 billion
How large a tax cut would be needed to achieve the same increase in aggregate demand?
Tax cut = $ 4.44 billion
b. Determine one possible combination of government spending increases and tax increases that would accomplish the same goal
without changing the amount of outstanding debt.
Increase government spending by $
Increase taxes by $
billion
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