The fiscal multiplier measures the effect of government spending on a nation's price level. True False Suppose the marginal propensity to consume (MPC) is .80 and government spending increased by $2 billion. What is the change in gross domestic product? $2.80 billion $3.33 billion $2.5 billion $10 billion
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- Suppose that the government allocates $1 billion for new roads. It also raises taxes by $1 billion to keep the deficit from growing. The absolute value of the government purchase multiplier is 3.33 and that of the tax multiplier is 2.33. What is the effect on equilibrium GDP? GDP does not change. ● GDP increases by $ 2.33 billion. GDP increases by $3.33 billion ⒸGDP increases by $1 billion.O Macmillan Learning The graph shows the income-expenditure model for the country of Desireland, where AE represents aggregate expenditure. The Desirish government wants to stimulate the economy owing to a slowdown in economic activity and, as such, decides to increase infrastructure spending by $7.65 billion. Show the impact of this extra spending given a marginal propensity to consume (MPC) of 0.7 and a total tax take of 30%, for any changes in GDP. In this example, assume that there is no international trade or inflation, and that interest rates are fixed. Planned aggregate spending (in billions of dollars) 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0 0 01- 5 10 15 20 25 30 35 40 45 50 Real GDP (in billions of dollars) 45 degree line A new socialist government is elected to Desireland and decides to increase direct spending even more, to total of $9.7 billion. What will be the total change in real GDP? Please provide the answer to the nearest whole billion. Planned AE 55 60 65 70…3@ 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.
- Potential GDP 450 C+l+G+X-IM) F T 4,000 5,000 6,000 Real GDP (billions of dollars per year) In Figure 11-1, the slope of the expenditures schedule is 0.75, and the govemment wishes to achieve full employment. It should cut spending by 1,000. increase spending by 250. cut taxes by 1,000. cut taxes by 250. increase spending by 1,000. Real ExpenditureQuestion 44 If a $35 billion increase in government expenditures increases equilibrium GDP by $175 billion, then: inflation is occurring. Ⓒthe MPS for this economy is 3. O the MPS for this economy is 2. the multiplier is 4.Which of the following fiscal policies cause a decrease in aggregate expenditures? OA. An increase in transfer payments and an increase in government spending. PAn increase in transfer payments and a decrease in taxes. A decrease in taxes and an increase in government spending MAN increase in taxes and a decrease in covernmentspenong
- An economy has a fixed price level, no imports, and no income taxes. MPC is 0.9, and real GDP is $200 billion. Businesses increase investment by $10 billion. Calculate the new level of real GDP and explain why real GDP increases by more than $10 billion. *** The new level of real GDP is $100 billion. Real GDP increases by more than $10 billion because the increase in investment OA. enables firms to produce more output B. increases exports C. induces an increase in consumption expenditure D. increases the marginal propensity to consumeFigure 3-3 45° Planned Expenditure 200 + 0.75Y 45 Income (Y) In the figure above: a. Find the equilibrium GDP. What happens to the left of that equilibrium? What happens to the right? b. When income is $1,000, what is the unplanned inventory? c. What is the GDP multiplier? d. What is the tax multiplier? e. How much should government expenditures increase if the government wants to increase GDP from the equilibrium level found at point a) to 1,000? f. How much should taxes decrease if the government wants to increase GDP from the equilibrium level found at point a) to 1,000? Planned ExpenditureUse the figure to calculate the marginal propensity to consume (MPC) between point A and point B. MPC = 0.75. (Enter your response rounded to two decimal places.) O Real consumption spending ($ billions) Consumption and National Income $3,750- $2,250- m C $3,000 $5,000 Real national income or real GDP ($ billions)
- Multiplier Effect a. During a recessionary gap, is the goal to increase or decrease the equilibrium GDP? Will the change in spending be greater than, less than or equal to the change in the equilibrium GDP? b. c. In a given economy with an MPC of 0.8, the equilibrium GDP equals $630,000. If G increases by $70000, solve for the new equilibrium GDP that will result. In a given economy, with an equilibrium GDP of $280,000 both government purchases and taxes increase by $10,000. Solve for the new equilibrium GDP that will result from these two changes.The government of Osiris believes in balancing its budget over a seven-year cycle. Over the first six years, it has maintained its spending at $200 billion and its MTR at 0.25. (There are no autonomous taxes in Osiris). Column 2 of the table below shows the level of GDP in each of the first six years in the cycle. a. Complete the table below. Round your answers to nearest whole number. (4) (1) Year (2) GDP (3) Tax Revenue Government (5) Deficit/Surplus Spending ($billion) ($ billion) ($billion) 1 800 200 2 760 200 740 200 4 825 200 820 200 825 200 Suppose that the estimated level of GDP in Year 7 is projected to be $800. b. What level of government spending (assuming no change in the tax rate) for the government of Osiris to end the seven-year cycle with its budgetary goal on target? Government spending would have to be $ c. Alternatively, what should the new tax rate be (assuming no change in government spending) for the government of Ran to end the seven-year cycle with its budgetary…5. If an economy has a recessionary expenditure gap, the government could attempt to bring the economy back toward the full-employment level of GDP by taxes or government expenditures.