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.
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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.
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- In the country of Krugman, a business spent $100 million building a factory. GDP eventually increased by 200 million. People spend 11% of every dollar on imports. What is the marginal propensity to consume in this economy? Write your answer as a number, between 0 and 1. If you think the answer is 0, write 0.00, not 0. Answer: Study the graph below. When will the multiplier be biggest? Select one: The multiplier will be the same size no matter what Aggregate Demand is b. The multiplier will be one no matter what aggregate demand is When aggregate demand is at AD1 d. When aggregate demand is at AD3 e When aggregate demand is at AD2 Price Level AD₁ AS e All of these are true AD₂ AD₁ GDP Why is potential output called potential, when it is not actually the most the economy can produce? Select one: a. Because potential is the most the economy can produce right now, with the technology and workers and equipment we have right now. Ob. Because economists just like to be confusing for no reason…There 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?How does an increase in tax influence the size of the multiplier
- 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.Logically discuss the impact of the increase in government taxes on consumption.Suppose the following list of events describes all of the economic activity resulting from an increase in government spending. Suppose that at each step after the initial one, the marginal propensity to consume is 0.62 and the tax rate is 8%. Step 0. The government spends $8500 on meat to host a very large dinner for foreign diplomats. Step A. The butcher takes the income earned by selling the meat, saves some, and spends the rest on a wedding cake for his daughter. Step B. The baker who produced the wedding cake saves some of her earnings and uses the rest to purchase beautiful candlesticks as gifts for all of her friends. Step C. The local candlestick maker saves some of his revenue for retirement and spends the rest on building materials to improve his house. Instructions: Modify the settings in the interactive tool to represent this event. Then click "Spending Rounds" and use the table to answer the following questions. Round answers to the nearest cent, if necessary. How much does…
- Suppose the following list of events describes all of the economic activity resulting from an increase in government spending. Suppose that at each step after the initial one, the marginal propensity to consume is 0.67 and the tax rate is 16%. Step 0. The government spends $8500 on meat to host a very large dinner for foreign diplomats. Step A. The butcher takes the income earned by selling the meat, saves some, and spends the rest on a wedding cake for his daughter. Step B. The baker who produced the wedding cake saves some of her earnings and uses the rest to purchase beautiful candlesticks as gifts for all of her friends. Step C. The local candlestick maker saves some of his revenue for retirement and spends the rest on building materials to improve his house. Instructions: Modify the settings in the interactive tool to represent this event. Then click "Spending Rounds" and use the table to answer the following questions. Round answers to the nearest cent, if necessary. How much…Why would a higher tax rate lower the government purchases multiplier? What does the tax rate have to do with the government purchases multiplier?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 (ADI). Suppose now that the government increases its purchases by $3.5 billion. 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 (AD) is parallel to AD₁. You can see the slope of AD, by selecting it on the following graph. PRICE LEVEL 116 114 112 110 108 106 104 102 AD 100 100 102 104 106 108 110 OUTPUT (Billions of dollars) 112 114 116 AD₂ | | AD₂ The following graph plots equilibrium in the money market at an interest rate of 3% and a quantity of money equal to $30 billion. Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. Money Supply Money…
- Review one government policy implemented between 2000-2010 and discuss the multiplier effects it had on the economy.Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. INTEREST RATE 15.0 12.5 10.0 7.5 5.0 2.5 0 0 15 Money Supply known as the Money Demand 30 45 60 MONEY (Billions of dollars) 75 90 Money Demand Money Supply image 2 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 Taking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded to by ▼at every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is ▼ effect. Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve (AD3) after accounting for the…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 $3 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD₂) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2) is parallel to AD₁. You can see the slope of AD₁ by selecting it on the following graph. (?) PRICE LEVEL 116 114 112 110 108 106 104 102 100 100 AD 1 102 104 106 108 110 112 OUTPUT (Billions of dollars) 114 116 AD2 AD 3
