Using the AE model, show the economy in equilibrium. Then, show the impact of an increase in taxes to reduce inflation. Would the above be considered expansionary or contractionary fiscal policy? Assume the change in taxes above is $15 billion dollars and MPC = .90. What will be the change in GDP?

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: List pros and cons of government spending. Can government spending be shown on the IS model or the…

A: AD(aggregate demand) has the following components: AD=C+I+G+(X-M)C is consumption expenditureI is…

Q: suppose the government wishes to illuminate recessionary of a gdp of 100 billion in the MPC is .075.…

A: To calculate increase in government spending we have to first calculate the spending multiplier.

Q: Explain what the spending multiplier is. Describe the actions the government could take, using…

A: Spending measures the change in equilibrium GDP due to change in government spending.  Spending…

Q: Decrease in government expenditure Increase government expenditure Decrease in government…

A: Aggregate expenditure is the current value of all the finished goods and services in the economy.

Q: The following data are for the economy of Moksha.   C = 30 + 0.6Y   G = 150 I = 60   XN = 50 −…

A: C=30 + 0.6Y  ---------> Consumption function G=150 -------------> Government expenditure I=60…

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: How can a tax cut increase investment, and what is the impact on the economy?

A: A tax is a compulsory financial charge or levy imposed by a government on individuals, businesses,…

Q: Suppose that consumption is 70 million and disposable income is 350 and that the economy is…

A: A recessionary GDP gap refers to when natural GDP is higher than actual GDP. This implies actual GDP…

Q: If we assume marginal propensity to consume (b) is 80 % and marginal tax rate (t)is 15 %, and…

A: The effect of change in government spending on the national income is the government multiplier.

Q: Consider the data of country E. Suppose an event happened and the price level and real GDP changed…

A: 1.To determine which AD-AS graph correctly shows the changes in SRAS, LRAS, and AD based on the…

Q: Consider an economy that is operating below the full-employment level of real GDP. What would be the…

A: Meaning of Gross Domestic Product (GDP): The term gross domestic product refers to the situation…

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: Define what is 'automatic stabiliser' in fiscal policy, and provide 2 examples

A: Meaning of Fiscal Policy: The term fiscal policy refers to the situation under which the…

Q: The fiscal multiplier measures the effect of government spending on a nation's price level. True…

A: The fiscal policy refers to the policy of taxes and expenditures of government. The change in…

Q: Given the b=mpc=.8, and Yf-Ye=400, how much government spending is necessary to close the…

A: Government spending or expenditure includes all government consumption, investment, and transfer…

Q: Assume taxes are zero and an economy has a consumption function of C = 0.59 (Yd) + $213.05.  What is…

A: When there are no savings, the income reaches the break-even level. We are aware that savings plus…

Q: Assume that initial GDP is $1,000 and we want to expand it to $1,600. Average MPC for the country is…

A: Economists use the marginal propensity to save (MPS) to measure the link between income and savings.…

Q: If the economy is producing in the intermediate zone of the ad/as would you suggest discretionary or…

A: The government of the country takes the help of fiscal policy measures to maintain balance in the…

Q: How much government spending needs to be increased by to maintain full employment in the economy If…

A: *Answer:

Q: In a depressed economy with an MPC of 0.20, what effect will a $200 increase in government spending…

A: Consumption is the sum of autonomous consumption and consumption dependent on income. Disposable…

Q: Use what you have learned about the fiscal multiplier to explain why, in Krugman’s opinion, fiscal…

A: Introduction Paul Krugman is an American economist and Nobel Prize laureate who works at the…

Q: Differentiate the macroeconomic effects that explain the causes of the differences of government…

A: By market value, aggregate demand is determined which only symbolizes total output at a given level…

Q: Why do economic booms and recessions tend to be transmitted across national borders? Explain your…

A: In a recession, the incomes and economic activity in a nation decline along with the real GDP. On…

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: Q.3.2 Explain, using the AD-AS model, how the South African Government can use fiscal policy as a…

A: Under various situations of uncertainty, there are various tools available before a government to…

Q: For each of the following figures, indicate what changes in fiscal policy would result in a shift…

A: Fiscal policy refers to the policy which is implemented by the government in order to stimulate the…

Q: Suppose the aggregate expenditure (AE) schedule in an economy is given by the equation AE = 1,000 +…

A: Aggregate expenditure (AE) is a measure of national income. It is the total amount of spending in…

Q: Expenditures that would exist at a zero level of income are called induced expenditures:  True or…

A: There are two types of expenditure : Induced expenditure and Autonomous expenditure  Induced…

Q: Fiscal policy of increasing government expenditures can be more potent than monetary policy in…

A: Fiscal and monetary policy: Fiscal policy signifies the policies taken by the government of an…

Q: The country is experiencing a serious rise in inflation which the government wants to control…

A: The term "GDP" (gross domestic product) refers to the entire worth of goods and services generated…

Q: Does Ricardian equivalence imply that changes in the timing of government expenditure have no effect…

A: Government expenditure refers to the total amount of money spent by a government in a given period…

Q: Suppose real GDP is currently $12.5 trillion and potential real GDP is $13 trillion. If the…

A: Aggregate demand is the sum of consumption spending, Investment spending, Government spending  and…

Q: For the last time, consider the economy described above. You won't work directly with its numbers in…

A: Given;  Government spending= $1000 Net taxes= $1500 Output=$8000 Consumption=$3500 MPC=0.8 And…

Q: Suppose the president is successful in passing a $5 billion tax increase. Assume that taxes are…

A: In economics, the concept of a multiplier effect is used to determine how changes in monetary and…

Q: Suppose the economy is in a Recessionary Gap. Show the impact of the appropriate Fiscal Policy…

A: A recessionary gap, also known as a negative output gap, occurs when the actual level of real gross…

Q: Suppose the economy begins at full employment. Label this starting point as point "1." Then,…

A: Aggregate supply: The aggregate supply or AS is a macroeconomic concept. The total amount of…

Q: Consider the graph at right showing an economy in recession. Aggregate demand is currently at AD.…

A: The conce­pt of aggregate demand pe­rtains to the collective desire for goods and services within an…

Q: The marginal propensity to expend is 0.5 and there is a recessionary gap of $200. What fiscal policy…

A: The level of marginal propensity to expend is given as 0.5.The recessionary gap is given as $200The…