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- 3) So far we have assumed that the fiscal policy variables G and T are independent of the levels of income. In the real world, however, this is not the case. Taxes typically depend on the level of income, and so tend to be higher when income is higher. In this problem we examine how this automatic response of taxes can help reduce the impact of changes in autonomous spending on output. Consider the following behavioral equations: C=C₁+C₂YD< T = to +t₁Y+ Y₂ = Y-T< G and I are both constant. Assume that t₁ is between zero and one.< a. Solve for equilibrium output. b. What is the multiplier? Does the economy respondmore to changes in autonomous spending when t₁ is zero or when t₁ is positive? Explain.< c. Why is fiscal policy in this case called an automatic stabilizer?Give 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.Consider the following behavioral equations: C =c, +c,Y» T=1, + 1,Y Y, = Y –T G and I are both constant. Assume that 4, is between 0 and 1. a. Solve for equilibrium output. b. What is the multiplier? Does the economy respond more to changes in autonomous spending when 1, is 0 or when 1, is positive? Briefly explain. c. Why is fiscal policy in this case called an automatic stabilizer?
- Now we look at the role taxes play in determining equilibrium income. Suppose we have an economy of the type in Sections 10-4 and 10-5, described by the following functions: C=50+.8YD I=70 G= 200 TR=100 t=20 a. Calculate the equilibrium level of income and the multiplier in this model. b. Calculate also the budget surplus, BS. c. Suppose that t increases to .25. What is the new equilibrium income? The new multiplier? d. Calculate the change in the budget surplus. Would you expect the change in the surplus to be more or less if C = .9 rather than .8? e. Can you explain why the multiplier is 1 when t=1?In a simple model without government spending or taxation, if C = a +bY where C is consumer spending and Y is GDP which of the following statements are correct? (Note that the algebra is deliberately written differently from the lecture notes to test your understanding!) Note that some of these questions require you to have read relevant sections of Core Unit 13. Select one or more: O a. a is known as the marginal propensity to consume Ob.a is the level of consumption when Y is zero c. b is known as the marginal propensity to consume O d. b is known as the average propensity to consume Oe. The consumption function implies that if GDP is zero, consumption is zero O f. If there is an increase in consumers who engage in "consumption smoothing", this will cause an increase in a and a decrease in b g. If there are more credit-constrained consumers in the economy, this will cause the marginal propensity to consume, to fall O h. If consumption-smoothing consumers become more optimistic about…Consider an economy in which the marginal propensity to consume is 0.8 and GDP is currently at 12,000. a) The government wishes to increase GDP to 13,000, and it is considering changing only one of its fiscal tools: 1. government purchases 2. taxes 3. transfer payments How much would the government have to change each of these fiscal policy tools to achieve its goal? (Use the simple spending multiplier for this part and below.) b) Suppose instead that the government wishes to reduce GDP to 10,000, and again, it is considering using only one of its three available fiscal policy tools. How much would it change each of these fiscal tools to achieve its goal?
- can you explain this a little more for me? its a practice quiz. i provided the prof's answer and mild explanation of the correct answer, but I still dont understand it. 13. If government spending is increased by $5, and this increase in spending is financed by a tax increase in the same amount, the effect on equilibrium would be: A). zero – the balance each other out. B) an increase in equilibrium of $10. C) a decrease in equilibrium of $5. D) an increase in equilibrium of $5. This is his answer: 13. d (compare fiscal policy options #1 and #2 shown above and use $5 for both ∆G and ∆Tx;use any MPC, for example .90) i dont understand how to math it. Can you show me how?"Willam H. Branson" of "Macroeconomic Theory and policy" states that the "Fiscalist Model is an improbable, extreme case of the general model and not a stance to be taken seriously". However, the economic scenario during COVID 19 might indicate otherwise. Write an essay in about 500-600 words expressing your thoughts on this matter. Instructions: Please provide relevant statistics/data in order to substantiate your opinions.Algebraically derive the government spending and tax multiplier for the case in which tax revenues depend on income level. Verbally explain what you do in each step of the derivation.
- A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009. At that time, the president’s economists estimated the multiplier to be a. 2.4 for government purchases and 1.4 for tax cuts. b. 3.2 for government purchases and 2.0 for tax cuts. c. 1.6 for government purchases and 0.4 for tax cuts. d. 1.6 for government purchases and 1.0 for tax cuts.Assume that the consumption function is given by C = 150 + 0.85(Y – T)and the tax function is given by T = t0 + t1Y where C = Consumption, Y = Total output/income, t0 = Autonomous/fixed tax and t1 = Tax rate. If t0increases by 1 unit, then explain whether consumption will be increased or decreased, and how much?Suppose the economy is characterized by the following behavioral equation: Y = C + I + G + (X-M) Equilibrium condition C = 2000 -f' 0.75Yd Consumption equation I = 4000 Investment expenditure G = 4100 Government Expenditure X = 2800 Export M = 400 + 0.25Y Import equation T = 100 + 0.3Y Tax equation Yd = disposable IncomeRequired:1. Compute equilibrium national income and Imports for the economy. 2. Differentiate between the closed-economy model and the open economy model 3. Derive Balance of Payment (BP) curve and explain why it slopes upwards The table blow shows recent population and labour force data for a country X.Total population (millions) - 2,2300,000Civilian population (over 18 years) -18,099,700Labour force =11,819,500Employed persons 11,212,300Based on the information above, calculate the unemployment rate and theparticipation rate