Macroeconomics
13th Edition
ISBN: 9780134735696
Author: PARKIN, Michael
Publisher: Pearson,
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Chapter 30, Problem 13APA
To determine
Estimate the value of tax revenue and government budget balance.
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7. Deriving and exploring the total expenditures curve
The following graph shows total production (TP) and the level of Natural Real GDP (NRGDP) for a hypothetical economy. When Real GDP is $450
billion, consumption is $375 billion, government purchases are $30 billion, and investment is $70 billion. When Real GDP is $500 billion, consumption
is $400 billion, government purchases are $30 billion, and investment is $70 billion.
Use the blue line (circle symbol) to plot the economy's total expenditure function within a simplified Keynesian framework.
TOTAL EXPENDITURE (Billions of dollars)
600
575
550
525
500
475
450
425
400
400
TP
O
425
X
NRGDP
O
450
475
500
525
REAL GDP (Billions of dollars)
550
575
600
TE
(?
6. Graphical treatment of taxes and fiscal policy
The main difference between variable taxes and fixed taxes is that unlike fixed taxes, variable taxes do not vary with GDP
The following graph shows the consumption schedule for an economy with a given level of taxes. Suppose the government implements a tax
increase through a fixed tax.
Use two green points (triangle symbol) to connect the two black points (plus symbols) representing the consumption schedule after the change in
taxes.
Hint: The new consumption schedule must pass through one point on the left and one point on the right.
Hint: The new consumption schedule must pass through one point on the left and one point on the right.
50
Consumption with Tax Increase through a Fixed Tax
Consumption with Tax Increase through a Variable Tax
+
20
40
60
80
100
REAL GDP (Billions of dollars)
The blue line on the next graph represents the original total expenditure line for this economy before the change in tax structure.
Use the new…
2. Calculating the debt to GDP ratio
Suppose the following statistics characterize the financial health of the hypothetical economy Splurgium at the end of 2017:
Gross domestic product (GDP) is equal to $160 billion.
• The national debt is equal to $240 billion.
• The government has a budget deficit of $8 billion.
The debt ceiling in Splurgium is set at $264 billion.
The following calculations help you see how the ratio of debt to GDP changes from one year to the next.
Complete the first row of the following table by computing the ratio of national debt to GDP.
Suppose that nominal GDP remains at $160 billion in 2018, and again the government runs a budget deficit of $8 billion. For simplicity, assume the
interest rate on the national debt is 0%, and no payments are being made to reduce the debt.
Calculate national debt and the debt-to-GDP ratio in 2018. Enter these values in the second row of the following table.
GDP
National Debt
(Billions of dollars) (Billions of dollars) Ratio of…
Chapter 30 Solutions
Macroeconomics
Ch. 30.1 - Prob. 1RQCh. 30.1 - Prob. 2RQCh. 30.1 - Prob. 3RQCh. 30.1 - Prob. 4RQCh. 30.1 - Prob. 5RQCh. 30.2 - Prob. 1RQCh. 30.2 - Prob. 2RQCh. 30.2 - Prob. 3RQCh. 30.2 - Prob. 4RQCh. 30.2 - Prob. 5RQ
Ch. 30.3 - Prob. 1RQCh. 30.3 - Prob. 2RQCh. 30.3 - Prob. 3RQCh. 30.3 - Prob. 4RQCh. 30.3 - Prob. 5RQCh. 30.4 - Prob. 1RQCh. 30.4 - Prob. 2RQCh. 30.4 - Prob. 3RQCh. 30.4 - Prob. 4RQCh. 30.4 - Prob. 5RQCh. 30 - Prob. 1SPACh. 30 - Prob. 2SPACh. 30 - Prob. 3SPACh. 30 - Prob. 4SPACh. 30 - Prob. 5SPACh. 30 - Prob. 6SPACh. 30 - Prob. 7SPACh. 30 - Prob. 8SPACh. 30 - Prob. 9SPACh. 30 - Prob. 10SPACh. 30 - Prob. 11SPACh. 30 - Prob. 12APACh. 30 - Prob. 13APACh. 30 - Prob. 14APACh. 30 - Prob. 15APACh. 30 - Prob. 16APACh. 30 - Prob. 17APACh. 30 - Prob. 18APACh. 30 - Prob. 19APACh. 30 - Prob. 20APACh. 30 - Prob. 21APACh. 30 - Prob. 22APACh. 30 - Prob. 23APACh. 30 - Prob. 24APACh. 30 - Prob. 25APACh. 30 - Prob. 26APACh. 30 - Prob. 27APACh. 30 - Prob. 28APA
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- 5. Automatic adjustments to the government budget The following table provides some information on government spending (G) and tax revenues (T) at different levels of real GDP in a hypothetical economy. Note: Throughout this problem you can assume, for simplicity, that government transfers are zero. Real GDP (Billions of dollars) 460 500 540 Government Spending (G) (Billions of dollars) 72 72 72 Tax Revenues (T) (Billions of dollars) 70 72 74 Use the blue line (circle symbols) to plot the government spending schedule presented in the table. Then use the orange line (square symbols) to plot the economy's tax revenues schedule.arrow_forward6. Graphical treatment of taxes and fiscal policy The main difference between variable taxes and fixed taxes is that unlike fixed taxes, variable taxes The following graph shows the consumption schedule for an economy with a given level of taxes. Suppose the government implements a tax increase through a fixed tax. Use two green points (triangle symbol) to connect the two black points (plus symbols) representing the consumption schedule after the change in taxes. Hint: The new consumption schedule must pass through one point on the left and one point on the right. REAL CONSUMER SPENDING (Billions of dollars) 8 40 30 8 0 + + + O + ++ 20 40 60 REAL GDP (Billions of dollars) 80 + O + 100 Consumption with Tax Increase through a Fixed Tax Consumption with Tax Increase through a Variable Tax The blue line on the next graph represents the original total expenditure line for this economy before the change in tax structure. Use the new consumption line you just plotted to calculate the new…arrow_forward3@ An economy has neither imports nor income taxes. The MPC is 0.75 and the real GDP is $120 billion. The government increases expenditures by $4 billion. The multiplier is _____ and the change in real GDP from the increase in government expenditures is _____ billion.arrow_forward
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