I need help on this question PROBLEMS1. Assume that a hypothetical economy with an MPC of 0.8 is experiencing severerecession. By how much would government spending have to rise to shift theaggregate demand curve rightward by $25 billion? How large a tax cut would beneeded to achieve the samne increase in aggregate demand? Determine one possiblecombination of government spending increases and tax increases that wouldaccomplish the same goal without changing the amount of outstanding debt. LO1

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Answered: 1. Assume that a hypothetical economy…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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9. Suppose Amal calculates her permanent income by adaptive expectations . Year 2020 Amal's permanent income was 38,000 , and year 2021 actual income is 41,000 . Assume that , long - run marginal to consume is 0.90 and short - run marginal propensity to consume is 0.28 . What is her consumption expenditure year 2021 ? O 36.774 O 35,040 O 40.226 O 33.454 O 34.740 O None of the above is correct
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? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
7 Suppose a closed economy with no government spending which in equilibrium is producing an output and income of 1100. Suppose also that the marginal propensity to consume is 0.80, and that, if at full employment, the economy would produce an output and income of 3850 By how much would the government need to cut taxes (T) to bring the economy to full employment? (round your answer to the nearest whole value)
2. Suppose the economy is in recession. Policymakers estimate that aggregate demand is$100 billion short of the amount necessary to generate the long run natural rate of output.That is, if aggregate demand were shifted to the right by $100 billion, the economy would be inlong run equilibrium.a. Explain the impact on the economy if the government chooses to use fiscal policy to stabilizethe economy and the marginal propensity to consume (MPC) is given as 0.75 with no crowdingout.b. If there is a crowding out effect and investment is very sensitive to changes in the interest rate,should the government increase spending more or less than this amount?
Crusoe will live this period and the next period as the lone inhabitant of his island. His only income is a crop of 100 coconuts that he harvests at the begin- ning of each period. Coconuts not consumed in the current period spoil at the rate of 10 percent per period. (LO5) a. Draw Crusoe’s intertemporal budget constraint. What will be his consump- tion in each period if he regards future consumption as a perfect, one-for- one substitute for current consumption? b. What will he consume each period if he regards 0.8 unit of future consump- tion as being worth 1 unit of current consumption?
3. a. Suppose that in a year when GDP is rising rapidly you also observe theGovernment budget balance increasing. How can you explain this correlation? b. Now suppose instead that in a year when GDP is rising rapidly you also observethe Government budget balance decreasing. How can you explain this correlation?
Create three diagrams for the aggregate expenditures (AE) model for a public closed economy by adding different taxes. For the Diagram #1 suppose: Autonomous Expenditures: $6000; MPC: 0.75 Taxes: $1500;Potential Output: $16500For the Diagram #2 suppose: Autonomous Expenditures: $ 6000; MPC: 0.75;Taxes: $3000;Potential Output: $16500For the Diagram #3 suppose: Autonomous Expenditures: $6000; MPC: 0.75; Taxes: $2500Potential Output: $16500Explain each diagram by determining economic gaps and/or equilibriums. How does an increase in taxes affect GDP? How does a decrease in taxes affect GDP?
Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy�s multiplier is 3. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? The aggregate demand curve will shift_____ by $____ billion. In what direction and by how much will it eventually shift? The aggregate demand curve will shift_____ by $____ billion..
Suppose the federal government gives taxpayers a tax cut financed by borrowing. If taxpayers their debts, total spending will: O decrease. O first increase and then decrease. O increase. O remain unchanged.
Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy's multiplier is 4. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? In what direction and by how much will it eventually shift?
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?
A. Assume that a hypothetical economy with an MPC of .75 is experiencing severe recession. By how much would government spending have to rise to shift the aggregate demand curve rightward by $70 billion? B. How large a tax cut would be needed to achieve the same increase in aggregate demand?

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