Suppose actual real GDP is $4 trillion, potential real GDP is $1 trillion, and the marginal propensity to consume is 6. If we ignore price effects, by how many trillions of dollars should the government change its lump sum taxes to fix the gap? (Round this to two digits after the decimal and enter this value as either a positive value or a negative value without the dollar sign.)
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- Which of the following is NOT a tool of fiscal policy. O taxes O government spending Onterest rates none of the above Question 2 Assume the economy is in a deep recession. The appropriate fiscal policy response would be to: raise taxes and raise govemment expenditures cut taxes and cut govermment expenditures raise taxes and cut government expenditures O cut taxes and increase government expenditures D Question 3 Crowding out refers to the fact that: Tax cuts will cause inflation O Tax cuts may result in higher interest rates which will "crowd out" business investment spending O increased government spending will crowd out spending on imports none of the aboveFigure 8-23. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. 6 on4m21 3 Tax Revenue B Tax Size Refer to Figure 8-23. If the economy is at point A on the curve, then a small increase in the tax rate will O increase the deadweight loss of the tax and increase tax revenue. O increase the deadweight loss of the tax and decrease tax revenue. decrease the deadweight loss of the tax and increase tax revenue. O decrease the deadweight loss of the tax and decrease tax revenue.What are the three injection into the income-expenditure flow? O Government Spending, Consumer Spending. Exports O Goverment Spending. Investment, Exports : O Government Spending, Investment, Imports
- What is the formula for the marginal propensity to expend? A aggregate expenditures/A national income O b. A autonomous expenditures/A national income O a. O c. A consumption/A national income O d. A national income/A induced expendituresExercise D24 Compare two policies: a tax cut on income or an increase in government spending on roads and bridges. What are both the short-term and long—term impacts of such policies on the economy?Describe the mechanism by which supply creates its osi1 demand.
- People will search a long time to find a good job. So it might only takeyou two weeks to find a minimum wage job, but it might take yousix months to find a job paying five times the minimum wage. Let’sinvestigate how this simple fact might cause expansionary fiscal policyto increase the unemployment rate, at least temporarily.In the United States, federal contracts to build roads, bridges, orbuildings must pay higher-than-average wages. The law requiring thisis known as the Davis-Bacon Act, or the “prevailing wage law.”a. If the unemployment rate is 6% before a rise in government purchases, and if a rise in government purchases induces the typicalunemployed person to search 10% longer in the hopes of finding ahigh-paying government job, what will the unemployment rate beafter the rise in government purchases? Only consider the impactof this waiting-for-a-good-job effect.b. If the government wanted to get the good aggregate-demand stimulating effects of fiscal policy, but wanted to…graph below shows the economy oOT Japan. Planned Aggregate Expenditures 2400- 2100 1800- 1500 1200 AE 900- 600 AE Y 300- Potential Output 00 200 tobd 200d 2400 40 Reset Real income (in dollars) a) What type of gap exists in this economy, and how big is that gap? (Select one) $ 0 b) By how much must government expenditures change to eliminate this gap? (Select one) $ 0 c) Demonstrate this graphically in the graph above. Real aggregate expenditures (in dollars)Imagine there is a consumption smoother (also known as a PIH consumer) who expectsto live for another 40 years and to work for another 30 years. They just learned thatthey will receive a permanent pay increase from their job of $800. How much extra dothey consume this year? What is their marginal propensity to consume?
- Suppose real GDP is $3,500, what of these is occuring? $4,000 Supply 45-degree line Planned aggregate spending, AEplanned (billions of dollars) AEPlanned 3,000 Demand 2,000 1,400 1,000 800 $500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 Real GDP (billions of dollars) O Supply shortage. Exces supply. O Equilibrium. Excess demand.consumers increased consumption by a relatively small amount in 2008 and 2009 because thet believe the tax cuts temporary. true or falseWhat is the difference between indirect taxes and net indirect taxes? Macro economics