Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
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Question
Chapter 11, Problem 15E
To determine
To compute:
The equilibrium level of real
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suppose the government wishes to illuminate recessionary of a gdp of 100 billion in the MPC is .075. How much must the government increase in spending? Instead of increasing government spending by the amount you calculated what would be the effect of the government decreasing taxes by this amount explain?
Use the following equations for exercises 16-18.
C = $100 + .8Y
I = $200
G = $250
X = $100 – .2Y
16. What is the equilibrium level of real GDP?
17. What is the new equilibrium level of real GDP
if government spending increases by $150?
18. What is the new equilibrium level of real GDP if
government spending and taxes both increase by $150?
B
the cnonding and tax revenue
suppose the government wishes to eliminate a recessionary GAP of 100 billion and the MPC is .75. How much must the government increase in spending instead of increasing government spending by the amount you calculated? What would be the effect of the government decreasing taxes by this amount explain?
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Similar questions
- C = 450 + 0.4YI = 350G = 150X = 70Z = 35 + 0.1YT = 0.15YYf = 1550(Hint: use the multiplier method)Q.2.4 Calculate the tax revenue to the government of this country when the economyremains in equilibrium.Q.2.5 Calculate what the new equilibrium income should be if the government of thiscountry decides to cancel all taxes, implying the tax rate would now be 0%.Q.2.6 Before the government decreased the tax rate, how much of governmentspending was required to bring the economy to full employment?arrow_forwardIf the MPC in an economy is .8, government could close a recessionary expenditure gap of $200 billion by cutting taxes by?arrow_forwardSuppose that a certain country has an MPC of 0.9 and an equilibrium real GDP of $500 billion. If government decreases taxes by $4 billion, what will be its new equilibrium real GDP ? I thought the answer was $460 billion, but that was incorrect…arrow_forward
- Assume that equilibrium real GDP is $ 800 billion, potential real GDP is $ 950 billion, the MPC is .80, and the MPI is .40. aHow much taxes fall to eliminate the GDP gap? b.If government spending and taxes both change by the same amount, how much must they change to eliminate the recessionary gap?arrow_forwardThe partial data in the table below are for the economy of Arinaka. Planned investment, government spending, and all taxes are autonomous. You may assume that the MPC, MPS, and MPM are constant. a. Fill in the blanks in table below. Y $650 700 750 800 T $90 YD C $520 S $40 45 I $85 G $75 b. The value of equilibrium income is $[ c. If planned investment decreases by $20, the new value of equilibrium income is $[ XN $10 AE Unplanned Investmentarrow_forwardHow do income taxes and taxes on consumption expenditure influence the tax wedge? An increase in income taxes _______ the tax wedge, and an increase in taxes on consumption expenditure _______ the tax wedge. A. increases; increases B. increases; does not change C. decreases; decreases D. does not change; increasesarrow_forward
- Calculate how much output would expand by if the government increased spending by $500 billion and financedthis spending by increasing lump-sum taxes by the same amount.arrow_forwardO Macmillan Learning The graph shows the income-expenditure model for the country of Desireland, where AE represents aggregate expenditure. The Desirish government wants to stimulate the economy owing to a slowdown in economic activity and, as such, decides to increase infrastructure spending by $7.65 billion. Show the impact of this extra spending given a marginal propensity to consume (MPC) of 0.7 and a total tax take of 30%, for any changes in GDP. In this example, assume that there is no international trade or inflation, and that interest rates are fixed. Planned aggregate spending (in billions of dollars) 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0 0 01- 5 10 15 20 25 30 35 40 45 50 Real GDP (in billions of dollars) 45 degree line A new socialist government is elected to Desireland and decides to increase direct spending even more, to total of $9.7 billion. What will be the total change in real GDP? Please provide the answer to the nearest whole billion. Planned AE 55 60 65 70…arrow_forwardthe new equilibrium level of real GDP if government spending increases by $150? 18. What is the new equilibrium level of real GDP if government spending and taxes both increase by $150? 19. Make a graph showing the spending and tax revenue of your state government for as many years as you can find (use the government of your home country if you are not from the United States). What trends do you notice? What spending categories make up the largest share of the state budget? What are the largest sources of revenue?arrow_forward
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