Principles of Economics (MindTap Course List)
8th Edition
ISBN: 9781305585126
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 36, Problem 2CQQ
To determine
The impact on aggregate demand by tax cuts and government spending.
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According to Keynesian economics, what impact would a balanced budget amendment to the constuition requiring the federal government to balance its budget annually have on the economy?
Referring to the figure, an increase in government purchases will
A.
shift aggregate demand from AD1 to AD3.
B.
have no effect on aggregate demand.
C.
shift aggregate demand from AD1 to AD2.
D.
cause movement from point A to point B along AD1.
When thinking about Keynesian fiscal policy it is the case that big changes in national income can be made by making small changes to:
(a) Exchange rates;
(b) Interest rates.
(c) Tax codes;
(d) Autonomous expenditure;
Chapter 36 Solutions
Principles of Economics (MindTap Course List)
Ch. 36.1 - Prob. 1QQCh. 36.2 - Prob. 2QQCh. 36.3 - Prob. 3QQCh. 36.4 - Prob. 4QQCh. 36.5 - Prob. 5QQCh. 36.6 - Prob. 6QQCh. 36 - Prob. 1CQQCh. 36 - Prob. 2CQQCh. 36 - Prob. 3CQQCh. 36 - Prob. 4CQQ
Ch. 36 - Prob. 5CQQCh. 36 - Prob. 6CQQCh. 36 - Prob. 1QRCh. 36 - Prob. 2QRCh. 36 - Prob. 3QRCh. 36 - Prob. 4QRCh. 36 - Prob. 5QRCh. 36 - Prob. 6QRCh. 36 - Prob. 7QRCh. 36 - Prob. 8QRCh. 36 - Prob. 9QRCh. 36 - Prob. 10QRCh. 36 - Prob. 1PACh. 36 - Prob. 2PACh. 36 - Prob. 3PACh. 36 - Prob. 4PACh. 36 - Prob. 5PACh. 36 - Prob. 6PACh. 36 - Prob. 7PACh. 36 - Prob. 8PA
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- In the Keynesian model, if the economy is experiencing a recessionary gap of $825 billion and the marginal propensity to save is .20, which one of the following combinations of spending and taxing changes should the government implement in order to eliminate the gap? 1. Increase government spending by $350 billion and decrease taxes by $350 billion. 2. Decrease government spending by $125 billion and increase taxes by $50 billion. 3. Decrease government spending by $250 billion and increase taxes by $150 billion. 4. Increase government spending by $600 billion and decrease taxes by $225 billion. 5. Increase government spending by $100 billion and decrease taxes by $100 billion. 6. Increase government spending by $125 billion and decrease taxes by $50 billion.arrow_forwardAccording to the standard textbook Keynesian analysis, which is greater: the tax multiplier or the government spending multiplier? Explain the reasoning behind this relationship.arrow_forwardIn an economy, marginal propensity to consume (MPC) is 0.75 where Keynesian model works. Now, if government increases both its expenditure and taxes by 1000, then Income increases by 4000; Income increases by 3000; Income increases by 1000; Income do not change?arrow_forward
- Which of the following is not an example of government spending hike that will increase aggregate demand? Answers: A. Unemployment compensation. B. Government purchase of new military jet fighters. C. The construction of a new highway. D. Government purchase of new health care plan for retirees.arrow_forwardIn macroeconomics, in the Keynesian range of the AS curve _______________. Group of answer choices a decrease in aggregate spending would increase real GDP an increase in aggregate expenditure would decrease real GDP a decrease in aggregate expenditure would not have much impact on prices an increase in government spending would drastically increase the price levelarrow_forwardIn the Keynesian-cross model, if the MPC equals 0.75, then a $3 billion decrease in taxes increases planned expenditures by and increases the equilibrium level of income by $3 billion; $9 billion $2.25 billion; $9 billion $2.25 billion; $2.25 billion $3 billion; $3 billionarrow_forward
- Using the concept in Keynesian economics, which one of the following may not be an effective fiscal policy when there is inflation? a) increasing aggregate demand b) increasing corporate taxes. c) increasing personal taxes. d) decreasing government purchases.arrow_forwardUse the Keynesian cross to predict the impact on equilibrium GDP of equal-sized increases in both goovernment purchases and taxes.arrow_forwardTo combat a recession, the Keynesian fiscal policy recommends the Government: Select one: a. Increases taxes and decreases government spending to balance the budget. b. increases government spending and reduces taxes. c. increases taxes. d. reduces both taxes and government spending.arrow_forward
- How would a Keynesian Economist use Fiscal Policy to fight a Recession? Please do not write about Monetary Policy here, only Fiscal Policy.arrow_forwardLet's say that our country's Gross Domestic Product is at $15 billion (this year). We also know that we currently have unemployment and that we would have full employment if our Gross Domestic Product were to reach $18.5 billion. If the Keynesian multiplier is 7, then what would Keynesian economists recommend regarding changes in government spending and taxation?arrow_forwardConsider the following income/expenditure diagram in the simple Keynesian model. If taxes, T, were increased, then Group of answer choices A) The Y = C+S+T line would shift to the right, and equilibrium Y would increase. B) the C+I+G line would shift downward, and equilibrium Y would decrease. C) The Y = C+S+T line would shift to the left, and equilibrium Y would decrease. D) neither of the lines would shift, and equilibrium Y would stay the same. E) the C+I+G line would shift upward, and equilibrium Y would increase.arrow_forward
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