Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
7th Edition
ISBN: 9780134472669
Author: Blanchard
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 16, Problem 5QAP
a
To determine
To show:Impact on current output, interest rate, current private spending when FED will not change its current real policy interest rate.
b
To determine
To know:Impact on current output, interest rate, current private spending when FED will act to prevent change in current and future output.
c
To determine
To Know:Impact on current output, interest rate, current private spending when FED will not change either current real policy interest rate or the future real policy.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
True or false. Most of the federal expenditures are not at the year-to-year discretion of Congress and/or the President?
TRUE/FALSE
According to the Laffer curve, increases in tax rates always result in less tax revenue.
3) So far we have assumed that the fiscal policy variables G and T are independent of the
levels of income. In the real world, however, this is not the case. Taxes typically depend
on the level of income, and so tend to be higher when income is higher. In this problem
we examine how this automatic response of taxes can help reduce the impact of changes
in autonomous spending on output.
Consider the following behavioral equations:
C=C₁+C₂YD<
T = to +t₁Y+
Y₂ = Y-T<
G and I are both constant. Assume that t₁ is between zero and one.<
a. Solve for equilibrium output.
b. What is the multiplier? Does the economy respondmore to changes in autonomous
spending when t₁ is zero or when t₁ is positive? Explain.<
c. Why is fiscal policy in this case called an automatic stabilizer?
Chapter 16 Solutions
Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
Knowledge Booster
Similar questions
- When supply-side economists propose cuts in tax rates, most mainstream economists are likely to take the position that they will be: Group of answer choices Effective because the supply-side effects will outweigh the demand-side effects Effective because the demand-side effects will outweigh the supply-side effects Ineffective because the demand-side effects will outweigh the supply-side effects Ineffective because the demand-side and supply-side effects will offset each otherarrow_forwardPlease match each description with the appropriate approach to federal finance. Policymakers should reduce spending and increase taxes when the economy is growingin order to prevent "overheating". This approach was considered conventional wisdom until the advent of theGreat Depression. Policymakers should focus on keeping unemployment low and providing the peoplewith the public goods and services they want. If insisted upon, this approach would only worsen the economy during a recession. This approach ignores the impact of the budget on the business cycle.arrow_forwardPlease match each description with the appropriate approach to federal finance. Policymakers should reduce spending and increase taxes when the economy is growingin order to prevent "overheating".This approach was considered conventional wisdom until the advent of theGreat Depression.Policymakers should focus on keeping unemployment low and providing the peoplewith the public goods and services they want.If insisted upon, this approach would only worsen the economy during a recession.This approach ignores the impact of the budget on the business cycle. Answer bank in imagearrow_forward
- President Biden proposed increasing the corporate tax rate from 21% to 28%. However, this reform has been hard to pass in the Senate. Imagine he asks you to predict revenue changes as a result of a lower increase in the corporate tax (from 21% to 24%). What kind of basic information would you need to make such predictions?arrow_forwardplease teach explain step by step, how is it like to graph?arrow_forwardExpenditures are always made with clear policy to guide them. Politics never enters the equation? True or Falsearrow_forward
- Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forwardFeedback will be left for correct work. fill in the box and answer drop downs. drop down options in order 1 - 150.00, 100.00, 75.00, 50.00 2 - 90.00, 45.00, 30.00, 60.00 3 - 27.00, 54.00, 18.00, 36.00 4 - 16.20, 21.60, 32.40, 10.80 thank you Suppose autonomous government spending increases by $100 billion and the value of the MPC is 0.6. Use the following table to compute four rounds of the spending multiplier effect. New Consumption Spending Round Components of Total Spending (Billions of dollars) 1 Investment Consumption Consumption Consumption After an infinite number of spending-output-spending rounds, the total change in real GDP resulting from the $100 billion increase in government spending is S billion.arrow_forwardNote:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forward
- Consider our two-period model. Instead of having lump-sum taxes t, t', what if we have instead proportional taxes T, T' corresponding to current and future proportional taxes, respectively. A. B. C. Derive mathematically the lifetime budget constraint in this case. (Hint: From micro, what is a proportional tax?) What is the slope of the lifetime budget constraint? Explain briefly why the Ricardian equivalence theorem doesn't really apply in this case.arrow_forwardconsumers increased consumption by a relatively small amount in 2008 and 2009 because thet believe the tax cuts temporary. true or falsearrow_forwardPlease see below the spending information pertaining to the participants of a hypothetical economy. C = $10+ 0.8Y I = $20 G = $30 X-M = $10 (a) State the name of the economic agent/participant that each equation above would apply to. (b) State the assumptions underlying the equations for C and I. Why do we make these assumptions? (c) Draw a graph to illustrate the desired aggregate expenditures of an economy whose participants have the spending plans provided above. (d) Calculate the value of equilibrium output. (e) How much are consumers saving at equilibrium and how much non-consumer spending is being injected? (f) Assuming that the full-employment level of output is $300, what kind of gap exists and how large is it? Identify the gap on the graph. (g) What type of policy would you recommend to the policymakers to achieve full- employment level of output? Why? What could be some of the concerns associated with your policy proposal?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Microeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506893Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Macroeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506756Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Microeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Macroeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning