The marginal propensity to consume out of permanent income equals 0.9 and the marginal propensity to consume out of transitory income equals 0.1. Suppose that there is an emergency increase in government spending of $200 billion to repair infrastructure. The spending takes place within a year. The spending increase is financed by a one-time increase in taxes. Prior to the increase in government spending, permanent income equals $9,600 billion and transitory income equals zero. (a) Compute the amounts of consumption expenditures and private saving prior to the tax increase. (b) Compute the amount of changes in consumption expenditures and private saving, given that the tax increase lasts for only one year. (c) Compute the initial change in aggregate demand that results from this combination of increases in government spending and taxes.

The marginal propensity to save is 0.2. Equilibrium GDP will decrease by $50 billion if the aggregate expenditures schedule decreases by Multiple Choice   $10 billion.   $250 billion.   $25 billion.   $5 billion.

Assume an MPC of 0.9. The change in total spending for the economy as a result of a $100 billion new government spending injection would be: A) $90 billion B) $80 billion C) $900 billion D) $800 billion

Suppose that equilibrium output in a closed economy is 1,680, consumption 1,260 and investment is 120. The marginal tax rate is zero. The marginal propensity to consume out of national income is 0.75. The level of government expenditure (G) is 1260 120 300

Suppose the government enacts a stimulus program composed of $500 billion of new government spending and $200 billion of tax cuts for an economy currently producing a GDP of $14,000 billion. If all of the new spending occurs in the current year and the government expenditure multiplier is 1.8, the expenditure portion of the stimulus package will add percentage points of extra growth to the economy. (Round your response to two decimal places.) If the government taxation multiplier is 0.8, the tax cut portion of the stimulus package will add percentage points of extra growth to the economy. (Round your response to two decimal places.) As a result of the stimulus program, the economy's GDP was increased by percentage points over its value without the program. (Round your response to two decimal places.) If the economy's actual growth was 5 percent, then without the stimulus package, growth would have been percentage points. (Round your response to two decimal places and use a minus sign…

Consider a hypothetical closed economy in which households spend $0.70 of each additional dollar they earn and save the remaining $0.30.   The marginal propensity to consume (MPC) for this economy is0.7   , and the oversimplified multiplier for this economy is3.3333   .     Suppose the government in this economy decides to increase government purchases by $300 billion. The increase in government purchases will lead to an increase in income, generating an initial change in consumption equal to$210 billion   . This increases income yet again, causing a second change in consumption equal to$147 billion   . The total change in demand resulting from the initial change in government spending is$1 trillion   .   The following graph shows the aggregate demand curve (AD1 ) for this economy before the change in government spending. Use the green line (triangle symbol) to plot the new aggregate demand curve (AD2 ) after the multiplier effect takes place. For simplicity,…

Suppose you are given the following information. Autonomous spending is at $3000, government spending is at $4000, investment spending is at $2000, net exports are $1000, taxes are set at $3000 and the mpc is .8 or 80%. What is the equilibrium level of output? What would happen if the government tried to balance the budget? The other day, it was announced the consumer confidence was up last month. This sounded good news bells for firms. Why? What would be affected in our equation above? Why would it matter? Suppose the government tried to balance the budget my cutting spending, what would be the equilibrium level of output? If there is “crowding out (or in)”, what else might change in your equation? What impact would that have

Suppose that the economy is experiencing a recession with an estimated recessionary gap of $20 billion. Congress is considering the use of fiscal policy to ease the recession, but due to current political sentiments, it has determined that the maximum spending increase the government is willing to support is $1 billion. It wants to make up the remainder of the recessionary gap using tax cuts.   If a spending increase of $1 billion is approved and the MPC is 0.9, by how much will taxes need to be reduced to close the remainder of the recessionary gap?   Instructions: Round your answer to 2 decimal places.   $  billion

in another economy, the MPC = 4/5, government needs to increase expenditures $20 to complete a project, but it does not want to increase debt so it increases taxes $20 also. What, if any, will be the change in output generated by this balanced - budget expenditure scenario?

Suppose the government raised taxes by $100,000 and simultaneously raised spending by $100,000. If the marginal propensity to consume is 0.65, what is the net effect on Gross Domestic Product? (use a negative number if GDP would go down, and a positive number if GDP would go up) Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.