The change in aggregate demand that results from fiscal expansion changing the interest rate is called the a. multiplier effect. b. crowding-out effect. c. accelerator effect. d. Ricardian equivalence effect.
Q: Suppose that there are no crowding out effects and the MPC is .7. By how much must the government…
A:
Q: Given the following model for an economy C = 100 + 0.8Yd G = 800 T = 500 I = 200 a)…
A: As per the guidelines, we only answer the first three sub-parts at a time. Please resubmit the other…
Q: What is true about the balanced budget multiplier? A. The balanced budget multiplier is positive…
A: The balanced budget multiplier is the budget situation where the spending of the government and the…
Q: Consider an economy described by the following equations: C = 300 + 0.90 (Y – T)…
A: Government spending multiplier = 1 / 1 - MPC Government spending multiplier = - MPC / 1 - MPC
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A: Given Tax multiplier = -5 Reduction in Taxes = 200 Billion$ with reduction in taxes there is…
Q: Suppose that real GDP for an economy is currently 16,000 billion, the government purchases…
A: Fiscal policy refers to the actions taken by the government to intefere in the economic activity and…
Q: True/False 1) Unemploymen benefits are an example of fiscal policy.2) According to Ricardian…
A: A transfer payment is a redistribution of income facilitated by the government of an economy as it…
Q: Consider an economy with the following situation: C = 50 +0.8 YdI =100;T = 100 G =150 a. Solve for…
A: Aggregate expenditure is the sum of consumption, investment and government purchases. AE = C + I +…
Q: Suppose the government decide to use fiscal policy to close the output gap. The marginal propensity…
A: here we calculate the change of government spending require to close the GDP output , by using the…
Q: If the MPC is 0.9, the the government spending multiplier is: a. 0.1 b. 1.11 c.9 d. 10
A: (Since you have asked many questions, we will solve the first one for you. If you want any specific…
Q: If the economy is in an expansionary mode just coming out of a recession, in regards to aggregate…
A: If the economy is in expansionary mode, then the government spendings would have been high or the…
Q: 2. Fiscal policy Suppose a hypothetical economy is currently in a situation of deficient aggregate…
A: There is an output gap of $32 billion. To fill out this o/p gap or to help the economy to come out…
Q: 2. Fiscal policy Suppose a hypothetical economy is currently in a situation of deficient aggregate…
A: Given: Deficient aggregate demand=64 billion Economist A: Government spending multiplier=8, Tax…
Q: A cut in taxes will have a greater impact on aggregate demand if it is given to: a. people with a…
A: Marginal propensity to consume shows the change in consumption with respect to change in income.
Q: Differentiate the macroeconomic effects, multiplier and crowding effect, that explain the causes of…
A: The aggregate demand measures the total amount of a good or service that all the buyers in a market…
Q: Write and apply the concept of multiplier with the help of suitable example and diagram. How does…
A: Fiscal policy: It refers to the policy which is used by the government to correct the various…
Q: government spending multipliers are larger than tax multipliers and politicians can direct…
A: First we have to look at the equation for the Simple-Keynesian-Model. Y=C(Y-T)+I+G Where-Y is the…
Q: Suppose now a government is established: • Tax rate = 12.5% • Government expenditure = 100 1. The…
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Q: Expansionary fiscal policy refers to (increases, decreases) in government spending or icreases,…
A: Expansionary fiscal policy is used to increase the aggregate demand in an economy, while…
Q: Given the above information, assume the following: 1. For every 1% increase (decrease) in interest…
A: Given:- Consumption; C= $400 billion Investment; I= $200 billion Government spending; G= $100…
Q: Suppose that an economy faces a pandemic crisis. 1. Graph Aggregate demand and Aggregate supply I…
A: As we know that aggregate demand and aggregate supply curves, of the short-run, are drawn only…
Q: Which of the following is an example of an action where crowding-out could occur? O a) The…
A: A crowding out effect refers to a fall in the private investment in an economy due to an increase in…
Q: Which of the following is true? a. All economists agree that the tax multiplier is smaller than…
A: Government spending multiplier = ratio of change in income/ratio of change in government spending.
Q: Which one of the following statements is TRUE about the concept of crowding out? Select one: a.…
A: Fiscal policy refers to the set of measures adopted by the government of an economy to correct…
Q: The government lowers $0.9 trillion in taxes, restoring GDP from $10 trillion to its potential level…
A: Tax multiplier calculates the ratio of change in GDP(gross domestic product) and T(tax).
Q: Define Ricardian Equivalence theorem. Also explain:…
A: Aggregate demand refers to the total demand for goods and services in an economy. AD=C+I+G+X-M…
Q: The argument that an increase in aggregate demand, as a result of an increase in government…
A: The Crowding out effect occurs when the government aggressive borrows from the market and creates…
Q: The multiplier effect occurs when: Group of answer choices a. the planned spending in the economy…
A: The multiplier effect occurs when an initial change in autonomous spending led to a greater final…
Q: What is the effect of an increase in taxes when the economy is above full employment? What is the…
A: The aggregate demand curve or AD curve shows different combinations of price and output where both…
Q: Suppose, government is undertaking expansionary fiscal policy because of recessionary concerns. How…
A: The fiscal policy of the government would result in the policies of the government involving…
Q: Calculate the fiscal multiplier if the marginal propensity to save is 0.2.
A: Marginal Propensity to Save = 0.2 Fiscal Multiplier = -MPCMPSor Fiscal multiplier = -MPC1 - MPC
Q: In which of the following circumstances is expansionary fiscal policy more likely to lead to a…
A: In an economy, there is a multiplier impact on the real GDP and aggregate demand, when there is any…
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A: The impact of a change in income following a change in government spending is called government…
Q: If government purchases increase by $20 billion and aggregate demand shifts rightward by $30 billion…
A: the MPC for this economy is 0.33
Q: (Fiscal Multipliers) Explain the difference between the government purchases multiplier and the net…
A: A multiplier is a term used in economics to describe an economic factor that, when increased or…
Q: Given the following model for an economy C = 100 + 0.8Yd G = 800 T = 500 I = 200 a) Calculate the…
A: As per the guidelines, we only answer the first three sub-parts at a time. Please resubmit the other…
Q: Differentiate the multiplier effect and crowding-out effect that explain the causes of the…
A: The phenomenon of multiplier describes a change (increase or decrease) in the expenditure injection…
Q: A fiscal stimulus was initiated by President Obama in response to the economic downturn of…
A: Through stimulating consumer demand, the economic stimulus plan assisted resolves the Great…
The change in aggregate demand that results from fiscal expansion changing the interest rate is called the
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- The federal government implements an expansionary fiscal policy of increased spending and decreased taxes. Policy advisors predict output will increase 4% but are surprised when only 3% growth occurs. What might account for the fact that GDP increased by less than the multiplier predicted? a. Policy advisors' calculation of MPS was too high b. The aggregate supply curve was perfectly elastic c. Foreign purchases of domestic goods was greater than expected due to a devalued currency d. Consumption increases more than expected because of the decrease in taxes e. Investment decreased due to rising interest ratesWhich of the following is not an example of government spending hike that will increase aggregate demand? Answers: A. Unemployment compensation. B. Government purchase of new military jet fighters. C. The construction of a new highway. D. Government purchase of new health care plan for retirees.Could you do C and D In each of the following cases, calculate the spending multiplier and determine the size and shift of each fiscal policy on the AD (aggregate demand) curve. a. Government increases spending by $4 billion in an economy with a MPW of 0.7b. Government spending decreases by $2 billion in an economy with a MPC of 0.65.c. Government increases taxes by $3 billion in an economy with a MPW of 0.35d. A $5 billion tax cut causes an initial increase in spending of $1.5 billion.
- Assume there is a decrease in the aggregate demand, if expansionary fiscal policy is being used, the following action could be taken a. increase consumption by raising disposable income through cuts in personal taxes or payroll taxes b. increasing government spending by raising after-tax profits through cuts in business taxes c. increase government purchases through increased Federal Government spending on final goods and services and raising grants to state and local government to increase their expenditures on final goods and services d. All of the aboveMacmillan Learning What is the eventual effect on real GDP if the government increases its purchases of goods and services by $60,000? Assume the marginal propensity to consume (MPC) is 0.75. What is the eventual effect on real GDP if the government, instead of changing its spending, increases transfers by $60,000? Assume the MPC has not changed. An increase in government transfers or taxes, as opposed to an increase in government purchases of goods and services, will result in O no change to real GDP. O a smaller eventual effect on real GDP. a larger eventual effect on real GDP. O an identical eventual effect on real GDP.The use of government purchases (G) as a fiscal policy tool can have an effect on long-run growth in the economy. Under what circumstances might an increase in G cause the level of potential output (Y*) to increase? A. If the increase in G causes a permanent increase in the marginal propensity to consume, which causes a permanent rightward shift of the AD curve. B. If the increase in G is offset by an equal decrease in C, I, and NX. C. If the increase in G crowds out private investment. D. If the increase in G leads to a permanent increase in the level of autonomous saving in the economy. E. If the increase in G is spent on public infrastructure that increases the productivity of private-sector production.
- Figure 34-8 P AD₂ Refer to Figure 34-8. An increase in taxes will AD₁ shift aggregate demand from AD, to AD3. cause movement from point A to point B along AD₁. O have no effect on aggregate demand. shift aggregate demand from AD, to AD₂. AD₂In 2009, the US Federal government cut taxes by approximately $300 billion, increased government spending by approximately $300 billion, and increased transfer payments by approximately $200 billion. Answer the following question assuming that the marginal propensity to consume was 0.75. 1. Assume instead that American consumers, fearing an economic collapse, increased their marginal propensity to save to 0.5. Would this increase, decrease, or not change the effectiveness of the stimulus package? Explain.In 2009, the US Federal government cut taxes by approximately $300 billion, increased government spending by approximately $300 billion, and increased transfer payments by approximately $200 billion. Answer the following questions, assuming the marginal propensity to consume was 0.75. What was the maximum change in GDP from the government transfers? Show your work. If these numbers were accurate, what was the maximum change in GDP from the entire stimulus package? Show your work.
- An economy is operating with an output that is $400 billion dollars below its natural rate of $2000 billion dollars and fiscal policy makers want to close the recessionary gap. The central bank agrees to hold the interest rate constant so there is no crowding out. The marginal propensity to consume is 4/5. In which direction and by how much would the government spending need to change to close the gap? Fully explain your answer and provide a graph that shows the initial situationSuppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would a. always shift aggregate demand right by a smaller amount than the increase in government expenditures. b. always shift aggregate demand right by a larger amount than the increase in government expenditures. c. shift aggregate demand right by a larger, equal, or smaller amount than the increase in government expenditures. d. always shift aggregate demand right by the same amount as the increase in government expenditures.Hide student question Time Left : Determine whether each of the following is an example of a situation in which a direct expenditure offset to fiscal policy occurs. a. In an effort to help rejuvenate the nation's railroad system, a new government agency buys unused track, locomotives, and passenger and freight cars, many of which private companies would otherwise have purchased and put into regular use. b. The government increases its expenditures without raising taxes. To cover the resulting budget deficit, it borrows more funds from the private sector, thereby pushing up the market interest rate and discouraging private planned investment spending. c. The government finances the construction of a classical music museum that otherwise would never have received private funding.
