The simple aggregate expenditures model discussed in this chapter concluded that one form of spending was just as good as any other; increases in all types of spending lead to equal increases in income. Is there any reason to suspect that private investment might be better for the economy than government spending?

The simple aggregate expenditures model discussed in this chapter concluded that one form of spending was just as good as any other; increases in all types of spending lead to equal increases in income. Is there any reason to suspect that private investment might be better for the economy than government spending?

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter9: Aggregate Expenditures

Section: Chapter Questions

Problem 6E

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Explain graphically the determination of equilibrium GDP for a private economy through the aggregate expenditures model. Assume the MPC is .75. Now add government purchases (any amount you choose) to your graph, showing its impact on equilibrium GDP. Finally, add taxation (any amount of lump-sum tax that you choose) to your graph and show its effect on equilibrium GDP. Looking at your graph, determine whether equilibrium GDP has increased, decreased, or stayed the same given the sizes of the government purchases and taxes that you selected. Specify the level of GDP initially, the amount of Government Purchases, the amount of Taxes, and the ending amount of GDP if different from the original.
Explain graphically the determination of equilibrium GDP for a private economy through the aggregate expenditures model. Now add government purchases (any amount you choose) to your graph, showing its impact on equilibrium GDP. Finally, add taxation (any amount of lump-sum tax that you choose) to your graph and show its effect on equilibrium GDP. Looking at your graph, determine whether equilibrium GDP has increased, decreased, or stayed the same given the sizes of the government purchases and taxes that you selected.
Depict graphically the aggregate expenditures model for a private closed economy. Now show a decrease in the aggregate expenditures schedule and explain why the decline in real GDP in your diagram is greater than the initial decline in aggregate expenditures. What would be the ratio of a decline in real GDP to the initial drop in aggregate expenditures if the slope of your aggregate expenditures schedule was .8?
Refer to the graph for a private closed economy. At the $150-billion level of GDP: Select one: a. Aggregate expenditures are less than real GDP, so GDP will rise b. Aggregate expenditures are more than real GDP, so GDP will fall c. Aggregate expenditures are more than real GDP, so GDP will rise d. Aggregate expenditures will be equal to GDP, so there will be no change in GDP
Suppose the following list of events describes all of the economic activity resulting from an increase in government spending. Suppose that at each step after the initial one, the marginal propensity to consume is 0.62 and the tax rate is 8%. Step 0. The government spends $8500 on meat to host a very large dinner for foreign diplomats. Step A. The butcher takes the income earned by selling the meat, saves some, and spends the rest on a wedding cake for his daughter. Step B. The baker who produced the wedding cake saves some of her earnings and uses the rest to purchase beautiful candlesticks as gifts for all of her friends. Step C. The local candlestick maker saves some of his revenue for retirement and spends the rest on building materials to improve his house. Instructions: Modify the settings in the interactive tool to represent this event. Then click "Spending Rounds" and use the table to answer the following questions. Round answers to the nearest cent, if necessary. How much does…
Use the following information on economy X to answer the questions below.Consumption function: C = 250 + 0.8Y Investment spending: I = 150 Government spending: G = 500 Exports of goods and services: X = 200 Imports of goods and services: Z = 150 Proportional tax rate: t =25%Full employment level of income = 3575 1. Calculate the equilibrium income for the economy. 2. Calculate the change in government spending required to reach (3) full employment level of income.
Suppose the following list of events describes all of the economic activity resulting from an increase in government spending. Suppose that at each step after the initial one, the marginal propensity to consume is 0.67 and the tax rate is 16%. Step 0. The government spends $8500 on meat to host a very large dinner for foreign diplomats. Step A. The butcher takes the income earned by selling the meat, saves some, and spends the rest on a wedding cake for his daughter. Step B. The baker who produced the wedding cake saves some of her earnings and uses the rest to purchase beautiful candlesticks as gifts for all of her friends. Step C. The local candlestick maker saves some of his revenue for retirement and spends the rest on building materials to improve his house. Instructions: Modify the settings in the interactive tool to represent this event. Then click "Spending Rounds" and use the table to answer the following questions. Round answers to the nearest cent, if necessary. How much…
Use the information below to answer the following questions. Suppose that in China, investment is ¥190 billion, saving is ¥170 billion, government expenditure on goods and services is ¥195 billion, exports are V230 billion, and imports are *270 billion (Y is yuan, the currency of China). The government received billion in tax revenues. The government has a budget investment by and investment. equal to billion which is exerting a(n) the demand for loanable funds, which influence on the real interest rate
Use the following information on economy X to answer the questions below. Consumption function: C = 250 + 0.8Y Investment spending: I = 150 Government spending: G = 500 Exports of goods and services: X = 200 Imports of goods and services: Z = 150 Proportional tax rate: t =25% Full employment level of income = 3575 a) Calculate total autonomus spending for economy X. b) Calculate the multiplier for economy X. c) Calculate the equilibrium income for the economy. d) Calculate the change in government spending required to reach full employment level of income.
Economists often argue that a large increase in government purchases – such as for the military – will crowd out private-sector spending. Use the investment-saving diagram to defend or to refute their premise.
Q.4.1 Use the following information on economy X to answer the questions below. Consumption function: C = 250 + 0.8Y Investment spending: I = 150 Government spending: G = 500 Exports of goods and services: X = 200 Imports of goods and services: Z = 150 Proportional tax rate: t =25% Full employment level of income = 3575 Q.4.1.1 Calculate total autonomus spending for economy X. Q.4.1.2 Calculate the multiplier for economy X. Q.4.1.3 Calculate the equilibrium income for the economy.
C = 450 + 0.4Y I = 350 G = 150 X = 70 Z = 35 + 0.1Y T = 0.15Y Yf = 1550 Calculate the tax revenue to the government of this country when the economy remains in equilibrium. Calculate what the new equilibrium income should be if the government of this country decides to cancel all taxes, implying the tax rate would now be 0%. Before the government decreased the tax rate, how much of government spending was required to bring the economy to full employment?