How much government spending needs to be increased by to maintain full employment in the economy If the economy was facing recessionary gap of $2,000 billions? Assume MPC is .75? How much tax cut should government give if they wanted to eliminate this recessionary gap through tax cut?

Q: Suppose the short-run equilibrium level of real GDP is $3,000 billion and the MPC = 0.75. If full…

A: Given  Short run, real GDP is $3000 and Full employment GDP is $4000 MPC=0.75. We know from the…

Q: The tax cuts of 2017 increased the 2018 disposable income of households by roughly $200 billion. If…

A: The marginal propensity to save (MPS) is the percentage of additional income that is saved rather…

Q: Assume MPC=0.75. If an initial fiscal restraint of $100 billion is desired, by how much must Round…

A: Government spending usually denotes the overall amount of the money that the government usually…

Q: Suppose economists observe that an increase in government spending of $11 billion raises the total…

A: Crowding Out Effect:In economics, the Crowding Out Effect means the situationwhere increased…

Q: Assume there is a recessionary gap of $200 billion, and that the government has decided to engage in…

A: Answer; Multiplier = 1/(1 - MPC) = 1/(1-0.5) = 2

Q: real GDP = (Change in Taxes) X Change in equilibrium (Tax Multiplier) Change in equilibrium real GDP…

A: Initial change in the tax or investment causes multiple change in final income. The value of…

Q: Assume that a hypothetical economy with an MPC of 0.75 is experiencing a severe recession.…

A: Answer: Given, MPC=0.75 (a). The formula for the increase in aggregate demand is given below: Change…

Q: Suppose that the economy is experiencing a recession with an estimated recessionary gap of $30…

A: Recessionary Gap or the contractionary gap is a situation in an economy or nation when the country’s…

Q: Explain how the conduct of fiscal policy affects consumption and investment in equilibrium.

A: Fiscal policy is a macroeconomic policy that is implemented by the government for monitoring and…

Q: If the MPC in an economy is 0.80, government could close a recessionary expenditure gap of $80…

A: A negative output gap also known as recessionary output gap is when the long run output exceeds the…

Q: When exports exceed imports, all of the following are true except: O net foreign investment is…

A: Export means when goods and services are produced in one country and sold to buyer in other country…

Q: 2. Assume the MPC is 0.75 and policymakers have targeted real GDP to decrease by $300billion. By how…

A: To find out how much taxes must be increased to achieve the goal of decreasing real GDP by $300…

Q: Suppose a closed economy with no government spending which in equilibrium is producing an output and…

A: Remember the tax multiplier is less than the government spending multiplier. And we know that the…

Q: Suppose MPC equals 0.9, government taxes 30% of all incomes, and the marginal propensity to import…

A: here we calculate the change in G, by using the relevant given information , so the calculation as…

Q: If the marginal propensity to consume was 0.7, how large would each of the following need to be in…

A: The marginal propensity refers to the amount, by which consumption changes when income changes. It…

Q: If the marginal propensity to save in an economy is 0.2, and the marginal propensity to import is…

A: The objective of the question is to calculate the multiplier in an economy given the marginal…

Q: Help with the following exercises please show formula and step by step 1)  Assume the MPC is 0.70…

A: 1. (a) To calculate the initial impact on real GDP, we can use the expenditure multiplier, which is…

Q: The government estimates that the MPC is 0.80. How much should the government increase spending to…

A: The Marginal propensity to consume is given as 0.80. The anticipated shift in aggregate demand is…

Q: Suppose the government seeks to achieve a balanced budget by levying taxes of $50 billion and making…

A: If MPC=0.8 then  MPS=1-MPC MPS=1-0.8 MPS=0.2

Q: Instructions: In the table, enter your answers as a whole number. Round your answers for the MPC and…

A: a) MPC = ∆C/∆Y From the given table, ∆C = 80 ∆Y = 100 Hence MPC (c) = 80/100 = 0.8

Q: If the AD shortfall is $800 billion and the MPC is 0.8, a) How large is the desired fiscal stimulus?…

A: Fiscal stimulus refers to the tax cuts or the increased government expenditures that are employed by…

Q: Suppose a closed economy with no government spending which in equilibrium is producing an output and…

A: Given information, Actual output generated: 2250 Marginal propensity to consume: 0.75 Potential…

Q: A recessionary gap is how much GDP needs to increase from the current GDP to achieve full…

A: Recessionary gap: In general, a recessionary deficit is a disparity between real and future demand…

Q: If the MPC is 0.95, how much will taxes need to be cut to cause AD to increase by $200 million? None…

A: Aggregate demand is the sum of consumption, investment, government spending and net export. This…

Q: If the MPC in an economy is 0.80, government could close a recessionary expenditure gap of S80…

A: The marginal propensity to consumer (MPC) refers to the change in the change in the consumption…

Q: Suppose that the MPC is 0.8 and that $18 trillion of real GDP is currently being demanded. The…

A: GDP: It means the monetray value of finished goods and services that are produced in the country.

Q: Suppose a closed economy with no government spending which in equilibrium is producing an output and…

A: Tax multiplier represents the multiple by which GDP increases or decreases in response to a decrease…

Q: The the expenditures multiplier effect, the spending to bring about a given amount of increase in…

A: Multiplier effect refers to the overall impact on economy of government investment consumption or…

Q: Mexico's real GDP fell from 4.5 trillion pesos to 3.8 trillion pesos over the first part of 2020.…

A: Given,   Fall in GDP = 4.5 trillion pesos to 3.8 trillion pesos  Fall in consumer spending = 3.1…

Q: Given MPC (marginal propensity to consume) = 0.75, if the government implements an expansionary…

A: MPC = 0.75  Tax multiplier = (-MPC/1-MPC) Tax multiplier= (-0.75/1-0.75)Tax multiplier=…

Q: Given a MPC of 0.75, if consumer spending decreases by $300 billion, we would expect RGDP to…

A: MPC=0.75 Decrease in consumer spending=$300

Q: An economy is operating with an output that is $400 billion dollars below its natural rate of $2000…

A: The economy’s current level of output is $1,600 billion (2,000 - $400) and the economy’s potential…

Q: Assume that an economy with an MPC of 0.8 is experiencing a recessionary gap of $25 billion. The…

A: The marginal propensity to consume (MPC) is a crucial idea in macroeconomics because it assesses an…

Q: Suppose that the fiscal policy multiplier is 8.6. What is MPC? Use that MPC and assume that there is…

A: The value of MPC can be calculated as follows. The value of MPC is 0.883721.

Q: Let the marginal propensity to consume for an economy be 0.9 (MPC = 0.9). Policymakers in the…

A: Given MPC = 0.9 MPS = 1 – MPC = 0.1 Spending multiplier = 1/MPS = 10 Government reduced spending =…

Q: Suppose that the national economy is experiencing a recession with an estimated recessionary gap of…

A: A recessionary gap refers to the gap that arises when the actual real GDP is lesser than the…