Macroeconomics
13th Edition
ISBN: 9780134735696
Author: PARKIN, Michael
Publisher: Pearson,
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Chapter 27, Problem 24APA
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Identify the economist from different
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Chapter 11 shows that increased government purchases, with taxes held constant, can eliminate a recessionary gap. How could a tax cut achieve the same result?
Which of the following is not a valid point in debating the merits of increasing government expenditures or cutting taxes during a recession?
a. A cut in the marginal tax rate increases the incentives to find a job and work longer hours.
b. Consumers will save a portion of a tax cut.
c. The government may use the increase in expenditures on projects with little value, particularly, if it wishes to respond quickly.
d. There is no evidence that tax cuts have been followed by increases in economic growth.
The country is experiencing a serious rise in inflation which the government wants to control through fiscal policy. The Government will decrease spending by $20 million and increase taxes by $15 million. The marginal propensity to consume (MPC) is 0.80. What will be the effect on GDP and by how much?
A recessionary gap is how much GDP needs to increase from the current GDP to achieve full employment. Let us say that we are experiencing a recessionary gap of $36 million. Also assume that the MPC equals .80. The government decides to decrease taxes in order to close the recessionary gap. What will be the tax decrease?
An inflationary gap is how much GDP needs to decrease from the current GDP to maintain employment while avoiding inflation. Let us say that we are experiencing an inflationary gap of $200 million. The government decides to increase taxes. Assume that the MPC equals .80. What will be the tax increase?
d. The government wants to achieve a balanced budget. It, therefore,…
Chapter 27 Solutions
Macroeconomics
Ch. 27.1 - Prob. 1RQCh. 27.1 - Prob. 2RQCh. 27.1 - Prob. 3RQCh. 27.1 - Prob. 4RQCh. 27.2 - Prob. 1RQCh. 27.2 - Prob. 2RQCh. 27.2 - Prob. 3RQCh. 27.3 - Prob. 1RQCh. 27.3 - Prob. 2RQCh. 27.3 - Prob. 3RQ
Ch. 27.3 - Prob. 4RQCh. 27.4 - Prob. 1RQCh. 27.4 - Prob. 2RQCh. 27.4 - Prob. 3RQCh. 27 - Prob. 1SPACh. 27 - Prob. 2SPACh. 27 - Prob. 3SPACh. 27 - Prob. 4SPACh. 27 - Prob. 5SPACh. 27 - Prob. 6SPACh. 27 - Prob. 7SPACh. 27 - Prob. 8SPACh. 27 - Prob. 9SPACh. 27 - Prob. 10APACh. 27 - Prob. 11APACh. 27 - Prob. 12APACh. 27 - Prob. 13APACh. 27 - Prob. 14APACh. 27 - Prob. 15APACh. 27 - Prob. 16APACh. 27 - Prob. 17APACh. 27 - Prob. 18APACh. 27 - Prob. 19APACh. 27 - Prob. 20APACh. 27 - Prob. 21APACh. 27 - Prob. 22APACh. 27 - Prob. 23APACh. 27 - Prob. 24APACh. 27 - Prob. 25APACh. 27 - Prob. 26APA
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- The country is experiencing a serious rise in inflation which the government wants to control through fiscal policy. The Government will decrease spending by $20 million and increase taxes by $15 million. The marginal propensity to consume (MPC) is 0.80. What will be the effect on GDP and by how much? A recessionary gap is how much GDP needs to increase from the current GDP to achieve full employment. Let's say that we are experiencing a recessionary gap of $36 million. Also assume that the MPC equals .80. The government decides to decrease taxes to close the recessionary gap. How much will be the tax decrease? An inflationary gap is how much GDP needs to decrease from the current GDP to maintain employment while avoiding inflation. Let's say that we are experiencing an inflationary gap of $200 million. The government decides to increase taxes. Assume the MPC equals .80. How much will the tax increase be? The government wants to achieve a balanced budget. It therefore increases…arrow_forwardIn order to break stagflation, the government has to increase expenditure on food subsidies in the form of food vouchers, unemployment benefits or allowances, wages subsidy to increase household consumption expenditure and boost up the AD. With increased consumption expenditure, aggregate demand will rise, which would send a signal to the aggregate supply (AS) to raise production. This will create a positive effect, which will bring the economy out of recession. Show this in a graph.arrow_forwardEconomic activity is subject to fluctuations (booms and slumps). Which of the following statements is correct for the US economy, considering the entire period from 1870-2015? Select one: a. Economic fluctuations have been reduced by automatic stabilizers as the size of government has increased b. The main cause of economic fluctuations over this period has been the size of the agricultural sector and the effects of weather. c. Economic fluctuations have increased due to the speed with which money moves around the world in recent years d. Bank failures and financial crises were the main causes of economic fluctuations.arrow_forward
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