Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Chapter 27, Problem 5DQ
To determine
The most desirable option.
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The following graph shows the aggregate demand curve.
Shift the aggregate demand curve on the graph to show the impact of a tax hike.
(?)
130
Aggregate Demand
120
110
100
90
Aggregate Demand
80
70
10
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30
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 LEVEL
Question: What is the role of the fiscal multiplier in economic stimulus packages, and how does it contribute to economic recovery during a recession?A) The fiscal multiplier has no impact on economic stimulus packages.B) The fiscal multiplier measures the impact of government spending on the economy; a multiplier greater than 1 indicates that government spending can stimulate economic activity.C) The fiscal multiplier is the amount of money saved by the government through efficient spending.D) The fiscal multiplier is a measure of government debt resulting from stimulus spending.
consumers increased consumption by a relatively small amount in 2008 and 2009 because thet believe the tax cuts temporary.
true or false
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Economics: Principles & Policy
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- What is the effect of an increase in taxes when the economy is above full employment? What is the magnitude of the tax multiplier? An increase in taxes when the economy is above full employment _______ aggregate demand and real GDP, and the price level _______. A. increases; falls B. increases; rises C. does not change; does not change D. decreases; falls The magnitude of the tax multiplier is equal to _______. A. MPC times the government expenditure multiplier B. the government expenditure multiplier divided by MPC C. MPC D. the government expenditure multiplierarrow_forward4 Economist B believes that if tax rates are cut, tax revenue is likely to fall. This economist most likely believes that the percentage decrease in tax rates will ______________________________ percentage rise in the tax base.arrow_forward10) Fiscal policy is defined as changes in federal ________ and ________ to achieve macroeconomic objectives such as price stability, high rates of economic growth, and high employment. A) taxes; interest rates B) taxes; expenditures C) interest rates; money supply D) taxes; money supplyarrow_forward
- 1. The Multiplier and Fiscal Policy: one of the programs to combat the economic effects of the recession and pandemic was the CARES Act passed in March 2020. One of the provisions of the CARES act was a relief check of $1200 per adult and $500 per dependent child. These payments were actually advance rebates on 2020 taxes and so the payments came from the IRS. This tax cut distributed about $300 billion to most, but not all of the U.S. population. Major exceptions included families with undocumented members (which invalidated the whole family, even those who were legal residents or U.S. citizens), dependent adults (which invalidated many college students as well as seniors living with their children). The program was phased out for individuals making more than $75,000 and married couples earning more than $150,000. Which of the following statements is correct about the multiplier effect of this part of the CARES act? Group of answer choices The multiplier effect would be greater than…arrow_forward6. Changes in taxes The following graph shows the aggregate demand curve. Shift the aggregate demand curve on the graph to show the impact of a tax cut. PRICE LEVEL 130 120 110 100 90 80 70 0 10 20 30 OUTPUT Aggregate Demand 40 50 60 Aggregate Demand (2) Suppose the governments of two different economies, economy A and economy B, Implement a permanent tax cut of the same size. The marginal propensity to consume (MPC) in economy A is 0.7 and the MPC in economy B is 0.85. The economies are identical in all other respects. The tax cut will have a smaller impact on aggregate demand in the economy with thearrow_forward17. Problems with Countercyclical Fiscal Policy Country Y is entering a recession and is debating a stimulus package of tax cuts and increased government spending to counter it. Advocates of the package contend that the situation in Country Y makes countercyclical fiscal policy appropriate, while opponents claim the opposite. For each of the following characteristics of Country Y, indicate whether it supports arguments for the stimulus or against the stimulus. In Country Y, temporary government spending can be quickly decreased when it is no longer warranted. O Supports arguments against the stimulus Supports arguments for the stimulus The central bank of Country Y, is not going to use monetary policy to counter the recession. Supports arguments against the stimulus O Supports arguments for the stimulusarrow_forward
- 8. Changes in taxes The following graph plots an aggregate demand curve. Using the graph, shift the aggregate demand curve to depict the impact that a tax hike has on the economy. PRICE LEVEL 130 120 110 100 8 90 80 70 0 10 20 30 OUTPUT Aggregate Demand 40 50 60 Aggregate Demand ? Suppose the governments of two very similar economies, economy Y and economy Z, implement a permanent tax cut of equal size. Investment spending in economy Y is more sensitive to changes in the interest rate than investment spending in economy Z. The economies are otherwise completely identical. The tax cut will have a larger impact on aggregate demand in the economy with thearrow_forwardWhich of the following can tax cuts influence? a. aggregate demand and aggregate supply b. aggregate demand but not aggregate supply c. aggregate supply but not aggregate demand d. neither aggregate demand nor aggregate supplyarrow_forwardGive typing answer with explanation and conclusion Suppose that the typical Canadian spends 80 percent of their income. There is an income tax rate is 15% per period. If the government wanted to see the effect of a tax cut of $50 billion, what would be the tax multiplier that they would have to use.arrow_forward
- 1. The following is information for the economy of Texas, where taxes are wholly autonomous: C = 40 + 0.8YD where YD = (Y – T) G = T = 360 I = 120 XN = 107 – 0.1Y a. What is the value of equilibrium income? b. At equilibrium, what is the amount of budget deficit or budget surplus? c. If government increased both its spending and taxes by $60, what would be the new equilibrium income?arrow_forwardThe Government and Fiscal Policy (chapter 16) Why is the tax multiplier smaller than the government spending multiplier? Note: please do not give a copy & paste answer from Chegg. or course heroarrow_forwardImagine that a group of advisors to the president has suggested providing a tax cut for the middle class in order to stimulate the economy and reduce unemployment. The president has asked for your analysis of this proposed tax cut. Post your thoughts both as an economic scientist and economic policy advisor. Read the scenario and, respond to the following: Describe how an economic scientist would approach the tax cut recommended by the advisors in the scenario you just read. What are some economic factors that the economic scientist would consider when crafting his or her statement on the tax cut proposed? Describe how an economic policy advisor would approach the same tax cut and provide the reasoning behind the position. Remember to think like an economist scientist and economic policy advisor when you write your post, even if it goes against your own opinions about whether a tax cut is a good idea. To guide your responses, consider the following questions: What economic…arrow_forward
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