8. Changes in taxes The following graph plots an aggregate demand curve. Using the graph, shift the aggregate demand curve to depict the impact that a tax hike has on the economy. PRICE LEVEL 130 120 110 100 8 90 80 70 0 10 20 30 OUTPUT Aggregate Demand 40 50 60 Aggregate Demand ? Suppose the governments of two very similar economies, economy Y and economy Z, implement a permanent tax cut of equal size. Investment spending in economy Y is more sensitive to changes in the interest rate than investment spending in economy Z. The economies are otherwise completely identical. The tax cut will have a larger impact on aggregate demand in the economy with the

8. Changes in taxes The following graph plots an aggregate demand curve. Using the graph, shift the aggregate demand curve to depict the impact that a tax hike has on the economy. PRICE LEVEL 130 120 110 100 8 90 80 70 0 10 20 30 OUTPUT Aggregate Demand 40 50 60 Aggregate Demand ? Suppose the governments of two very similar economies, economy Y and economy Z, implement a permanent tax cut of equal size. Investment spending in economy Y is more sensitive to changes in the interest rate than investment spending in economy Z. The economies are otherwise completely identical. The tax cut will have a larger impact on aggregate demand in the economy with the

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question 1 There is a recession gap of $150 billion in the economy. The MPS is 20%. What is the MPC [Select] and the Government Spending Multiplier [Select] Government need to [Select] much [Select] change taxes, would they [Select] the Tax multiplier [Select] [Select] ? Would the spending? By how ? If the Government decided to taxes? What is and by how much
1.) If the MPC is 0.8 and taxes increase by $100 billion, what is the effect on equilibrium RGDP? equilibrium RGDP will fall by $80 billion equilibrium RGDP will fall by $125 billion equilibrium RGDP will fall by $400 billion equilibrium RGDP will fall by $500 billion 2.) If equilibrium RGDP is $10000 billion and full employment GDP is $9000 billion, and the MPC = 0.75, what is the appropriate fiscal policy to return the economy to full employment GDP reduce taxes by $250 billion reduce taxes by $333.33 billion raise taxes by $250 billion raise taxes by $333.33 billion
can you explain this a little more for me? its a practice quiz. i provided the prof's answer and mild explanation of the correct answer, but I still dont understand it. 13. If government spending is increased by $5, and this increase in spending is financed by a tax increase in the same amount, the effect on equilibrium would be: A). zero – the balance each other out. B) an increase in equilibrium of $10. C) a decrease in equilibrium of $5. D) an increase in equilibrium of $5. This is his answer: 13. d (compare fiscal policy options #1 and #2 shown above and use $5 for both ∆G and ∆Tx;use any MPC, for example .90) i dont understand how to math it. Can you show me how?
Suppose that the Philippine tax schedule given below is being implemented this year. (sorry, disregard the box) Tax Payment P 1,000 4,500 14,000 Annual Income P10,000 30,000 70,000 140,000 250,000 500,000 35,000 75,000 160,000
17 The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by increasing government purchases to reduce the burden of this recession. Price Level 160 140 120 100 80 60 40 20 0 (40, 100) Fiscal Policy LRAS प्रै ======= AD₁ billion AS 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) $| Suppose instead that the MPC is 0.5. AD Instructions: Enter your answers as a whole number. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ billion b. If the MPC is 0.6, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? c. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and government purchases need to change by $ billion.
What is the effect of an increase in taxes when the economy is above full employment? What is the magnitude of the tax multiplier? An increase in taxes when the economy is above full employment _______ aggregate demand and real GDP, and the price level _______. A. increases; falls B. increases; rises C. does not change; does not change D. decreases; falls The magnitude of the tax multiplier is equal to _______. A. MPC times the government expenditure multiplier B. the government expenditure multiplier divided by MPC C. MPC D. the government expenditure multiplier
6. Changes in taxes The following graph shows the aggregate demand curve. Shift the aggregate demand curve on the graph to show the impact of a tax cut. PRICE LEVEL 130 120 110 100 90 80 70 0 10 20 30 OUTPUT Aggregate Demand 40 50 60 Aggregate Demand (2) Suppose the governments of two different economies, economy A and economy B, Implement a permanent tax cut of the same size. The marginal propensity to consume (MPC) in economy A is 0.7 and the MPC in economy B is 0.85. The economies are identical in all other respects. The tax cut will have a smaller impact on aggregate demand in the economy with the
Suppose a tax is such that an individual with an income of $10,000 pays $2,500 of tax, a person with an income of $20,000 pays $5,000 of tax, a person with an income of $30,000 pays $7,500 of tax, and so forth. Instructions: Enter your answers rounded to 1 decimal place. a. What is each person's average tax rate? Income Таx Paid Average Tax Rate $ 10,000 $ 2,500 % 20,000 5,000 30,000 7,500
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a) Explain very briefly what you understand from income effect and substitution effects of change in income tax rates (you do not need to use a graph) b) Discuss whether supply-side policies have been successful in improving the performance of an economy regarding taxation.
2. Fiscal policy Suppose a hypothetical economy is currently in a situation of deficient aggregate demand of $64 billion. Four economists agree that expansionary fiscal policy can increase total spending and move the economy out of recession, but they are debating which type of expansionary policy should be used. Economist A believes that the government spending multiplier is 8 and the tax multiplier is 4. Economist B believes that the government spending multiplier is 4 and the tax multiplier is 2. Compute the amount the government would have to increase spending to close the output gap according to each economist's belief. Then, for each scenario, compute the size of the tax cut that would achieve this same effect. Policy Options for Closing Output Gap Increase in Spending Tax Cut (Billions of dollars) Spending Multiplier (Billions of dollars) Tax Multiplier 4 Economist A 8 Economist B 4 2 Economist C favors increases in government spending over tax cuts. This means that Economist C…
5. Fiscal policy, 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 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. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD₂) after the multiplier effect takes pla 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 gra (?) PRICE LEVEL 116 114 112 110 108 106 104 102 100 100 12 AD₁ 10 102 104 106 108 110 112 OUTPUT (Billions of dollars) 114 116 Money Supply Į þ The following graph plots equilibrium in the money market at an interest rate of 6% and a quantity of money equal to $15 billion. AD2 Show the impact of the increase in government purchases on the interest rate by shifting one or…