Suppose full employment output equals $25 trillion and actual output equals $14 trillion. If crowding out is not an issue and the MPC equals 0.80, then government spending of ............will close the output gap. O $2.2 trillion $55 trillion $13.75 trillion $8.8 trillion.
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- Explain how automatic stabilizers work, both on the taxation side and on the spending side, first in a situation where the economy is producing less than potential GDP and then in a situation where the economy Is producing more than potential GDP.Explain the difference between the government purchases multiplier and the net tax multiplier. If the MPC falls, what happens to the tax multiplier?Why is spending by the U.S. government on scientific research at NASA fiscal policy while spending by the University of Illinois is not fiscal policy? Why is a cut in the payroll tax fiscal policy whereas a cut in a state income tax is not fiscal policy?
- What is the main advantage of automatic stabilizers over discretionary fiscal policy?Suppose that the MPC is 0,80 and there is an AD excess of $1,200 million. Which of the following is an appropriate desired fiscal restraint? O $240 million decrease in government spending. $1.200 million decrease in government spending. O S1,500 million decrease in government spending. $960 million decrease in government spending.TRUE - OR - FALSE Crowding out occurs when an increase in government spending leads to declines in consumption, investment, and net exports. O True O False
- 16. If consumers in a country spend 4/5 of their disposable income. If their governmentdecreases its spending by 55 trillion and in order to maintain a balanced budgetsimultaneously decreases taxes by 55 trillion. Calculate the effect of the 55 trillion change ingovernment spending and 55 trillion change in taxes on the country’s aggregate demand.ineim Suppose the government decide to use fiscal policy to close the output gap. The marginal propensity to consume is 0.6 and the output GDP is $150 million Çalculate the minimum change in government spending required to close this output GDPsuppose the government wishes to illuminate recess or a gap of 100 billion in the MPC is .075 how much must’ve government increase in spending instead of increasing government spending by the amount you calculated what would be the effect of the government decreasing taxes by this amount explain?
- a) Suppose that there are no crowding-out effects and the MPC is 0.8. By how much must the government increase expenditures shift the aggregate-demand curve right $10 billion? b. The model of Long-run Growth, proposes that fiscal policy can have lasting effects on savings, investment, and economic growth. On the other hand, the model of Aggregate Demand-Aggregate Supply suggests that the only long run effect of fiscal policy is an increase in the price level. How could you use the Aggregate Demand and Aggregate Supply model for a more accurate description of the short-run and long-run effects of an increase in government spending? Could you distinguish between different uses of government expenditures to predict their effects on prices and output?Refer to the accompanying table for Waxwania. Government Expenditures, G Tax Revenues, T Real GDP $190 100 $500 190 120 600 190 140 700 190 160 800 190 180 900 a. What is the marginal tax rate in Waxwania? ____percent --The average tax rate? _____percent b. Suppose Waxwania is producing $600 of real GDP, whereas the potential real GDP (or full-employment real GDP) is $700.-How large is its budget deficit? $____ -Its cyclically adjusted budget deficit? $____ -Its cyclically adjusted budget deficit as a percentage of potential real GDP?________ percent1.Explain the concept of Automatic stabilizer, using the tax system as an example.2.Gomad is a small economy operating with output that is $40 million below its natural level. Assume there is no crowding-out effect and the price level is completely fixed in the short run, how much government spending does the fiscal policymakers need to change to close this recessionary gap if MPC is 0.8?3.Consider an economy described by the following equation:Y=C+Ig+G C=300+0.75(Y−T) Ig=700−12r G=250T=200where Y is the real GDP, C is the total consumption, Ig is the gross investment, G is thegovernment purchases, T is income taxes, and r is the real interest rate. Suppose r is real interest rate(in percent) = 10% 3.1 If income is equal to zero, what would be the level of consumption in this economy?
