Exploring Macroeconomics
8th Edition
ISBN: 9781544337722
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
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Question
Chapter 16, Problem 10P
To determine
To explain:
The reason behind the increase in aggregate
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Chapter 16 Solutions
Exploring Macroeconomics
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- If businesses and consumers become pessimistic, the government can attempt to reduce the impact on the price level and real GDP by A reducing taxes or decreasing government spending increasing taxes or increasing government spending © increasing taxes or decreasing government spending D reducing taxes or increasing government spendingarrow_forwardWhy will a temporary tax increase be insignificant in reducing consumption expenditures by the amount expectedarrow_forwardThe following graph shows the aggregate demand curve. Shift the aggregate demand curve on the graph to show the impact of a tax hike. 130 120 Aggregate Demand 110 100 90 Aggregate Demand 80 70 10 20 30 40 50 60 OUTPUT Suppose the governments of two different economies, economy J and economy K, implement a permanent tax cut of the same size. The marginal propensity to consume (MPC) in economy J is 0.85 and the MPC in economy K is 0.8. The economies are identical in all other respects. The tax cut will have a larger impact on aggregate demand in the economy with the PRICE LEVELarrow_forward
- Why does a balanced budget increase in spending and taxes increase aggregate demand?arrow_forwardSuppose actual real GDP is $13.74 trillion, potential real GDP is $12.69 trillion, and the marginal propensity to consume is 0.6. If we ignore price effects, and if the government already decided to increase its spending by $1.61 trillion, 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.) Correct Answer: 3.38 Please solve to get that same answerarrow_forwardIf you have the power to cut or increase taxes in your country with the aim of boosting aggregate demand, which tax will you most likely touch: Value Added Tax (VAT), Income Tax, or Corporate Tax? Will you cut it or will you increase it? Why? Provide a good explanation for your answer using good economic basis.arrow_forward
- Right now many economies in the world are experiencing a downturn due to the Corona Virus.a) What kind of fiscal policy can governments use to address the decline? b) What actions will be taken by the government in implementing the fiscal policy that you described in part a? c) What will be the effect on Aggregate Demand (if any) as a result of the actions taken in part b?d) What will be the effect on Aggregate Supply (if any) as a result of the actions taken in part b?arrow_forwardWhen the Federal government takes action to change taxes and spending to stimulate the economy such policy is: A) Discretionary B) Passive C) Automatic D) Nondiscretionaryarrow_forwardWhy would a higher tax rate lower the government purchases multiplier? What does the tax rate have to do with the government purchases multiplier?arrow_forward
- Consider an economy that is operating below the full-employment level of real GDP. What would be the effect of an increase in government spending on aggregate demand and real GDP?arrow_forwardSuppose real GDP is currently $12.5 trillion and potential real GDP is $13 trillion. If the president and Congress increased government purchases by $500 billion, what would be the result on the economy?arrow_forwardIf the MPC in an economy is 0.7, the government could shift the aggregate demand curve rightward by $40 billion by changing government purchases by $billion. Your Answer:arrow_forward
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