Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781337091985
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 16, Problem 2CQQ
To determine
Relation between government purchases, tax, and aggregate
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If the government increases expenditures on goods and services and increases taxation by the same amount, which of the following will occur?
A. Aggregate demand will be unchanged.
B. Aggregate demand will increase.
C. Interest rates will decrease.
D. The money supply will decrease.
One way that the government can increase aggregate demand is by:
A. reducing income taxes.
B. increasing the interest rates.
C. reducing government spending.
D. increasing business taxes.
The economy is in a recession The government enacts a policy to increase the real GDP by $10 bilion. The MPS is 0.2. Assuming that the aggregate supply curve is
horizontal across the range of GDP being considered, by how much should the government change spending or taxes in order to achieve its objective? Show your
calculations.
Chapter 16 Solutions
Brief Principles of Macroeconomics (MindTap Course List)
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- What effect does an increase in government spending have on the aggregate demand curve in an economy? A. The aggregate demand curve shifts to the left. B. The aggregate demand curve becomes steeper. C. The aggregate demand curve shifts to the right. D. The aggregate demand curve becomes flatter.arrow_forward21. If taxes a. increase, then consumption increases, and aggregate demand shifts leftward. b. increase, then consumption decreases, and aggregate demand shifts rightward. c. decrease, then consumption increases, and aggregate demand shifts rightward. d. decrease, then consumption decreases, and aggregate demand shifts leftward.arrow_forwardIf taxes are lowered, we can expect supply-side economists to support the decision to do so because a. government revenues will increase in the long run. b. government spending will decrease in the long run. c. the government will spend more in the short run. d. economic growth cannot occur without it.arrow_forward
- supply-side economists believe that a reduction in the tax rate a. always decrease government tax revenue b. shifts the aggregate supply curve to the right c. would decrease consumption d. provides no incentive for people to work more d. provides no incentive for people to work morearrow_forwardExplain the effect of tax increases on savings on aggregate supply using the model of the macroeconomy. Price Level (average price per unit of output) AS Output (real GDP per period) The results are that a. the equilibrium rate of output (Click to select) b. the equilibrium price level (Click to select) ✓ c. unemployment (Click to select) V ADarrow_forwardSomeone answer this question ASAP without explanantionA tax cut shifts aggregate demand A. by less than the tax cut. B. by the same amount as the tax cut. C. None of the options are correct. D. by more than the amount of the tax cut.arrow_forward
- If the government wants to expand aggregatedemand, it can _________ government purchases or_________ taxes.a. increase; increaseb. increase; decreasec. decrease; increased. decrease; decreasearrow_forwardConsider two policies, a tax cut that lasts for only 2 years and a tax cut that is expected to be permanent. Which policy will stimulate greater spending by consumers? Which policy will have the greater impact on aggregate demand? Select one: a. permanent tax cut; 2-year tax cut b. permanent tax cut; permanent tax cut c. 2-year tax cut; 2-year tax cut d. 2-year tax cut; permanent tax cutarrow_forwardA cut in personal taxes on households’ income: A shifts the aggregate demand curve to the left. B. shifts the aggregate demand curve to the right. C. moves the economy along the aggregate demand curve . D. has no effect.arrow_forward
- QUESTION 25 A tax cut shifts the aggregate demand curve the farthest if a. the MPC is large and if the tax cut is temporary b. the MPC is large and if the tax cut is permanent c. the MPC is small and if the tax cut is permanent d. the MPC is small and if the tax cut is temporaryarrow_forwardAssuming the economy is in long run and the govt implemnents a tax cut of $420 Billion, there is no crowding out, and marginal propensity to consume is 0.9 what's the initial and total effect of the tax reduction on aggregate demand? Is there a formula to calculate this?arrow_forwardIf the price level rises and the money wage rate remains constant, what happens to the quantity of real GDP supplied? How does the economy move? If the price level rises and the money wage rate remains constant, the quantity of real GDP supplied _______ and there is a movement up along the _______. A. increases; aggregate supply curve B. increases; potential GDP line C. does not change; aggregate supply curve D. does not change; potential GDP linearrow_forward
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