Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 31, Problem 9RQ
To determine
Inflationary expenditure gap.
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QUESTION 10
Assuming that the "equilibrium income" is $4,000 and the "full-employment" income is $8,000, which means a recessionary gap of $4,000, how much change in government expenditures
is needed to fill the gap if MPC is 0.50?
O $3,000
O $4,000
O $1,000
O $2,000
Suppose that the investment demand curve in a certain economy is such that investment declines by $110 billion for every 1
percentage point increase in the real interest rate. Also, suppose that the investment demand curve shifts rightward by $190 billion at
each real interest rate for every 1 percentage point increase in the expected rate of return from investment. If stimulus spending (an
expansionary fiscal policy) by government increases the real interest rate by 2 percentage points, but also raises the expected rate of
return on investment by 1 percentage point, how much investment, if any, will be crowded out?
Instructions: Enter your answer as a whole number.
billion
%24
Suppose that the investment demand curve in a certain economy is such that investment declines by $110 billion for every 1 percentage point increase in the real interest rate. Also, suppose that the investment demand curve shifts rightward by $170 billion at each real interest rate for every 1 percentage point increase in the expected rate of return from investment. If stimulus spending (an expansionary fiscal policy) by government increases the real interest rate by 2 percentage points, but also raises the expected rate of return on investment by 1 percentage point, how much investment, if any, will be crowded out?
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Chapter 31 Solutions
Economics (Irwin Economics)
Ch. 31.2 - Prob. 1QQCh. 31.2 - Prob. 2QQCh. 31.2 - Prob. 3QQCh. 31.2 - Prob. 4QQCh. 31.7 - Prob. 1QQCh. 31.7 - Prob. 2QQCh. 31.7 - Prob. 3QQCh. 31.7 - Prob. 4QQCh. 31 - Prob. 1DQCh. 31 - Prob. 2DQ
Ch. 31 - Prob. 3DQCh. 31 - Prob. 4DQCh. 31 - Prob. 5DQCh. 31 - Prob. 6DQCh. 31 - Prob. 7DQCh. 31 - Prob. 8DQCh. 31 - Prob. 1RQCh. 31 - Prob. 2RQCh. 31 - Prob. 3RQCh. 31 - Prob. 4RQCh. 31 - Prob. 5RQCh. 31 - Prob. 6RQCh. 31 - Prob. 7RQCh. 31 - Prob. 8RQCh. 31 - Prob. 9RQCh. 31 - Prob. 1PCh. 31 - Prob. 2PCh. 31 - Prob. 3PCh. 31 - Prob. 4PCh. 31 - Prob. 5PCh. 31 - Prob. 6PCh. 31 - Prob. 7PCh. 31 - Prob. 8PCh. 31 - Prob. 9PCh. 31 - Prob. 10P
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Similar questions
- Which of the following is correct? 1) Expansionary fiscal policy during a recession means cutting taxes, increasing government spending, or taking both actions. 2) The goal of expansionary fiscal policy is to rein in inflation. 3) Expansionary fiscal policy tends to lead to a smaller budget deficit. O 4) Expansionary fiscal policy is always better than contractionary fiscal policy for 4) the economy.arrow_forwardSuppose real GDP is $1.7 trillion, potential real GDP is $1.8 trillion, and the federal government plans to use fiscal policy to restore the economy to potential real GDP. Assuming a constant price level, the federal government would need to increase government purchases by more than $100 billion. O None of the above is correct. The federal government must decrease government purchases in this case. O $100 billion. O less than $100 billion.arrow_forwardWhich of the following changes in personal income tax would lead to the smallest increase in consumption? O a. O b. a $15 000 decrease in taxes, if MPC equals 0.6 O c. a $30 000 decrease in taxes, if MPC equals 0.25 Oe. a $20 000 decrease in taxes, if MPC equals 0.5 O d. a $12 000 decrease in taxes, if MPC equals 0.75 a $10 000 decrease in taxes, if MPC equals 0.2arrow_forward
- QUESTION 16 If the marginal propensity to save is 0.1, the marginal propensity to import is 0.1 and the marginal tax rate is 0.2, how much would consumption increase if income rises by £8billion? O a. 4.8 O b. 13.3 O c. 3.2 O d. 20 4arrow_forwardSuppose consumption function is specified as C= $200 + 0.75Ya planned investment is $600, net taxes are $400, and government spending totals $500 of a hypothetical economy in 2020. Find algebraically: LO 3 A. The equilibrium level of aggregate output by equating aggregate output and planned aggregate expenditure. B. Consumption when aggregate output is at the equilibrium level. C. Saving when aggregate output is at the equilibrium level. D. Establish that leakages equal injections at the equilibrium level of aggregate output.arrow_forwardAssume that taxes depend on income and the MPC is 0.8 and tis 0.4. An increase in taxes of $10 billion will decrease equilibrium income by Select one: O a. $15.4 billion. O b. $25 billion. O c. $19.2 billion. O d. $27 billion.arrow_forward
- /se estion 5 Suppose you were looking at an economy where the consumption function is; C = 50 +0.75Y And you know that investors want to spend 500 at every level of income. In other words 1-500 a. What is the equilibrium level of income? b. If the full - employment level of income is 2000, is there a recessionary gap? If so, how large is the gap? c. What will happen to the equilibrium level of income if investors become pessimistic about the country's future and reduce their investment to 400? d. Is there an inflationary or recessionary gap now? How large? marks) Format Tools Table TV- BIU AV V T²v / povarrow_forward9. Refer to the accompanying table in answering the questions that follow: L011.8 (1) Possible Levels (3) Aggregate Expenditures (2) Real Domestic (C, + 1, + X, + G), Millions of Employment, Output, Millions Millions 90 $500 $520 100 550 560 110 600 600 120 650 640 130 700 680 a. If full employment in this economy is 130 million, will there be an inflationary expenditure gap or a recessionary expenditure gap? What will be the consequence of this gap? By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the inflationary expenditure gap or the recessionary expenditure gap? What is the multiplier in this example? b. Will there be an inflationary expenditure gap or a recessionary expenditure gap if the full-employment level of output is $500 billion? By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the gap? What is the multiplier in this example? c. Assuming that investment, net exports,…arrow_forwardReal GDP Consumption (dollars) expenditure (dollars) 10 22.5 20 30 30 37.5 40 45 50 52.5 60 60 2 LAS 160 * SAS 150 140 130 120 AD 4 8 12 16 20 24 Real GDP (trillions of 2000 dollars) In the above table and figure, supposed that there is no import or proportional tax. To pull the economy back to the long-run equilibrium, the government can conduct a balanced budget operation by spending $ trillion. O 1) 1 O 2) 2 O 3) 4 4) 8 el (GDP deflator, 2000 = 100) Coarrow_forward
- What is the initial change in consumption if an economy's MPC is 0.75 and there is a decrease in taxes of $1 billion? O $1.75 billion O $1 billion O $1.33 billion O $0.75 billionarrow_forwardAssume a closed economy, that taxes are fixed, and the marginal propensity to consume is equal to 0.66. What is the government spending multiplier? O 1.51 3.33 3.03 33.3arrow_forwardAssuming a closed economy where autonomous consumption is $12 T, investment is $3 T, government spending is $2 T, and the MPC = 0.85, if there was a $1.5 T recessionary gap, what is the amount that taxes need to decrease by to fill the gap? O a. $489.1 billion Ob. $164.9 billion Oc. $386.8 billion. Od. $264.7 billionarrow_forward
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