2. Fiscal policySuppose a hypothetical economy is currently in a situation of deficient aggregate demand of $64 billion. Four economists agree that expansionaryfiscal policy can increase total spending and move the economy out of recession, but they are debating which type of expansionary policy should beused.Economist A believes that the government spending multiplier is 8 and the tax multiplier is 2. Economist B believes that the government spendingmultiplier is 4 and the tax multiplier is 8.Compute the amount the government would have to increase spending to close the output gap according to each economist's belief. Then, for eachscenario, compute the size of the tax cut that would achieve this same effect.Policy Options for Closing Output GapIncrease in SpendingTax CutSpending MultiplierTax Multiplier(Billions of dollars)(Billions of dollars)Economist AEconomist B48 Economist C favors tax cuts over increases in government spending. This means that Economist C likely believes that:A dollar in tax cuts immediately and fully adds to aggregate demand.Tax cuts induce investment spending and improve workers' incentives.Economist D argues that it is not possible to move the economy out of recession by increasing government spending. Which of the followingstatements is consistent with Economist D's belief?A rise in government spending completely crowds out private sector spending.A rise in government spending does not crowd out private sector spending.

Government expenditure(G) multiplier and tax(T) multiplier shows the change in the total output(Y)…

Economist C favors tax cuts over increases in government spending. This means that Economist C likely believes that: A dollar in tax cuts immediately and fully adds to aggregate demand. Tax cuts induce investment spending and improve workers' incentives. Economist D argues that it is not possible to move the economy out of recession by increasing government spending. Which of the following statements is consistent with Economist D's belief? O A rise in government spending completely crowds out private sector spending. A rise in government spending does not crowd out private sector spending.

Economist C favors tax cuts over increases in government spending. This means that Economist C likely believes that: A dollar in tax cuts immediately and fully adds to aggregate demand. Tax cuts induce investment spending and improve workers' incentives. Economist D argues that it is not possible to move the economy out of recession by increasing government spending. Which of the following statements is consistent with Economist D's belief? O A rise in government spending completely crowds out private sector spending. A rise in government spending does not crowd out private sector spending.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose the economy begins at full employment. Label this starting point as point "1." Then, suppose that a long strike by coal miners reduces the coal supply and increases the price of coal. Show the effects on your graph and label the new equilibrium point "2." Lastly, suppose our government wants the economy to return to full-employment as quickly as possible. Should the government intervene? If so, show the impact of successful fiscal policy on your graph. Label this new equilibrium point "3."
Which of the following statements is true of government spending? O An increase in government spending raises the equilibrium level of income by a multiple of the original spending increase. O Government spending is a part of monetary policy, not fiscal policy. O A decline in government spending brings about an expansion in the economy. O An increase in government spending increases the recessionary gap in the economy. An increase in government spending shifts the aggregate demand curve downward by a fraction of the rise in governiment spending.
Assume that a hypothetical economy with an MPC of 0.8 is experiencing severe recession Instructions: In part around your answers to 2 decimal places. Enter your answers as positive numbers in part enter your answers as whole numbers. a. By how much would government spending have to rise to shift the aggregate demand curve rightwerd by 50 S 10.00 bilion How large a tax cut would be needed to achieve the same increase in aggregate demand? $ 13 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 e, maintaining the budget balance at its current value) billion Increase spending by Increase taxes by bilion Save & Ext
Which of the following is not a predicted outcome of implementing automatic fiscal policy? О а. Reduces the size of the multiplier O b. Helps prevent inflation due to inflationary gaps O C. Moderates the business cycle O d. Decreases the deficit O e. Reduces the effects of economic shocks
Suppose the equilibrium level of income exceeds the full employment level of income and there is high inflation. Hence, the government decides to implement a fiscal policy that will act to reduce national output and prices. This can be accomplished by: O increasing government spending such that aggregate expenditures are increased. O raising taxes and government spending by the same amount such that aggregate supply is decreased and aggregate demand is increased. O decreasing government spending such that aggregate demand is reduced. lowering average tax rates such that aggregate supply is increased. O increasing transfer payments such that aggregate expenditures decline.
QUESTION 10 The multiplier effect demonstrates that: O equal increases in government spending and taxes do not change the equilibrium GDP equal increases in government spending and taxes reduce the equilibrium GDP equal increases in government spending and taxes increase the equilibrium GDP. taxes have a stronger effect upon equilibrium GDP than do government purchases. government purchases have a stronger effect upon equilibrium GDP than do taxes. Click Save and Submit to save and submit. Click Save All Answers to save all answers. SA
pls answer urgent all question Q1,a,b,c . Q1-Suppose the government reduces taxes by $20 billion, that there is no crowding out, and that the marginal propensity to consume is ¾. a. What is the initial effect of the tax reduction on aggregate demand? b. What additional effects follow this initial effect? What is the total effect of the tax cut on aggregate demand? c.How does the total effect of this $40billion tax cut compare to the total effect of a $40 billion in governmentpurchases? Why?
Question 25 Which of the following is true regarding the simple tax multiplier? I has the same sign but larger magnitude than the simple fiscal multiplier. O It has the same sign but lower magnitude than the simple fiscal multiplier. O t has the opposite sign and lower magnitude than the simple fiscal multiplier. It has the opposite sign and a larger magnitude than the simple fiscal multiplier.
Which of the following is carried out in an expansionary fiscal policy? O a. Higher taxes and lower government expenditure O b. Lower taxes and higher government expenditure O c. Higher taxes and higher government expenditure O d. Lower taxes and lower government expenditure.
In the dynamic model of AD-AS in the figure to the right, if the economy is at point A in year 1 and is expected to go to point B in year 2, Congress and the president would most likely pursue OA expansionary fiscal policy. OB. expansionary automatic stabilizers. OC. contractionary fiscal policy. OD. contractionary monetary policy. OE. expansionary monetary policy. Click to select your answer MacBook Air Price Level 104 100 101 LRAS, LRAS₂ A B 11113AD Real GOP SRAS, SRAS₂ AD₂
Attempts 10. Crowding out effect Keep the Highest/2 Suppose economists observe that an increase in government spending of $13 billion raises the total demand for goods and servic If these economists ignore the possibility of crowding out, they would estimate the marginal propensity to consume (MPC) to be Now suppose the economists allow for crowding out. Their new estimate of the MPC would be than their initial one. Grade It Now 3/4 1/4 4 52 billion. Save & Continue
Question 7. Suppose a closed economy with no government spending which in equilibrium is producing an output and income of 2300. Suppose also that the marginal propensity to consume is 0.80, and that, if at full employment, the economy would produce an output and income of 3750 By how much would the government need to cut taxes (T) to bring the economy to full employment? (round your answer to the nearest whole value) Your Answer: Answer View hint fr