Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 36, Problem 2QCMC
To determine
The impact on aggregate demand by tax cuts and government spending.
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According to Keynesian economics, what impact would a balanced budget amendment to the constuition requiring the federal government to balance its budget annually have on the economy?
According to traditional Keynesian analysis, a tax cut has a larger effect on aggregate demand than an increase in government expenditures of the same size.
a.true
b.false
The keynesian school of thought argues that during a recession…
a) Governments should reduce spending and increase taxes
b) Governments should increase spending and reduce taxes
c) Government should increase spending and increase taxes
d) Government should reduce spending and reduce taxes.
Chapter 36 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
Ch. 36.1 - Prob. 1QQCh. 36.2 - Prob. 2QQCh. 36.3 - Prob. 3QQCh. 36.4 - Prob. 4QQCh. 36.5 - Prob. 5QQCh. 36.6 - Prob. 6QQCh. 36 - Prob. 1QRCh. 36 - Prob. 2QRCh. 36 - Prob. 3QRCh. 36 - Prob. 4QR
Ch. 36 - Prob. 5QRCh. 36 - Prob. 6QRCh. 36 - Prob. 7QRCh. 36 - Prob. 8QRCh. 36 - Prob. 9QRCh. 36 - Prob. 10QRCh. 36 - Prob. 1QCMCCh. 36 - Prob. 2QCMCCh. 36 - Prob. 3QCMCCh. 36 - Prob. 4QCMCCh. 36 - Prob. 5QCMCCh. 36 - Prob. 6QCMCCh. 36 - Prob. 1PACh. 36 - Prob. 2PACh. 36 - Prob. 3PACh. 36 - Prob. 4PACh. 36 - Prob. 5PACh. 36 - Prob. 6PACh. 36 - Prob. 7PACh. 36 - Prob. 8PA
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- When thinking about Keynesian fiscal policy it is the case that big changes in national income can be made by making small changes to: (a) Exchange rates; (b) Interest rates. (c) Tax codes; (d) Autonomous expenditure;arrow_forwardIn the Keynesian model, if the economy is experiencing a recessionary gap of $825 billion and the marginal propensity to save is .20, which one of the following combinations of spending and taxing changes should the government implement in order to eliminate the gap? 1. Increase government spending by $350 billion and decrease taxes by $350 billion. 2. Decrease government spending by $125 billion and increase taxes by $50 billion. 3. Decrease government spending by $250 billion and increase taxes by $150 billion. 4. Increase government spending by $600 billion and decrease taxes by $225 billion. 5. Increase government spending by $100 billion and decrease taxes by $100 billion. 6. Increase government spending by $125 billion and decrease taxes by $50 billion.arrow_forwardAccording to the standard textbook Keynesian analysis, which is greater: the tax multiplier or the government spending multiplier? Explain the reasoning behind this relationship.arrow_forward
- In the Keynesian cross, assume that the consumption function is given by C = 200 + 0.75 (Y − T ). Planned investment is 100; government purchases and taxes are both 100. A. What is the equilibrium level of income? B. If government purchases increase to 125, what is the new equilibrium income? C. What level of government purchases is needed to achieve an income of 1,600?arrow_forwardIn an economy, marginal propensity to consume (MPC) is 0.75 where Keynesian model works. Now, if government increases both its expenditure and taxes by 1000, then Income increases by 4000; Income increases by 3000; Income increases by 1000; Income do not change?arrow_forwardWhich 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.arrow_forward
- Two identical countries, Country A and Country B, can each be described by a Keynesian-cross model. The MPC is 0.6 in each country. Country A decides to increase government spending by $2 billion, while Country B decides to cut taxes by $2 billion. In which country will the new equilibrium level of income be greater? Show all computations.arrow_forwardIn a recession spending is Krugman (who is a Keynesian) the government should taxes and spending. less than, cut, increase more than, cut, cut more than, cut, increase 58 less than, increase, cut than the productive capacity of the economy. According to Paul governmentarrow_forwardIn macroeconomics, in the Keynesian range of the AS curve _______________. Group of answer choices a decrease in aggregate spending would increase real GDP an increase in aggregate expenditure would decrease real GDP a decrease in aggregate expenditure would not have much impact on prices an increase in government spending would drastically increase the price levelarrow_forward
- Using the concept in Keynesian economics, which one of the following may not be an effective fiscal policy when there is inflation? a) increasing aggregate demand b) increasing corporate taxes. c) increasing personal taxes. d) decreasing government purchases.arrow_forwardHow would a Keynesian Economist use Fiscal Policy to fight a Recession? Please do not write about Monetary Policy here, only Fiscal Policy.arrow_forwardTo combat a recession, the Keynesian fiscal policy recommends the Government: Select one: a. Increases taxes and decreases government spending to balance the budget. b. increases government spending and reduces taxes. c. increases taxes. d. reduces both taxes and government spending.arrow_forward
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