Look at the photo for prompt
Question: Since you took Mr. Inzer’s Honors Economics course, you question your Economic advisors. Based on what you know about economics, what policy should Nellie Bellie enact to close the output gap? Explain, using an actual example and precise numbers; show your calculations.
Real output = $15 trillion
Unemployment rate = 10%
If there is full employment, National income will be = $18 trillion
Consumption is $80 for every additional $100 that is change in consumption is $80 when income changes by $100.
So, MPC = Change in consumption/Change in income = 80/100 = 0.8
Also, we know that there will be a multiplier effect when there is an increase in final income due to new injections of spending in the economy.
Multiplier effect can be calculated by the formula (for government expenditure): 1/ (1-MPC) = 1/ (1-0.8) = 5 times
Tax multiplier = -MPC/ 1-MPC = -0.8 / 0.2 = -4 times
Transfer payment multiplier = MPC / 1-MPC = 0.8 / 0.2 = 4 times
Analysing all the 3 cases:
1)Reducing taxes by $500 billion, will lead to an increase in the disposable income of the citizens, allowing them to this extra income and thus increasing the aggregate demand.
Taxes reduced = -$500 billion. We know, tax multiplier = -4
Therefore, total increase in income = 4 * 500 billion = $2000 billion = $2 trillion
Thus, the national income will be = 15 trillion + 2 trillion = $17 trillion
Still there is a gap of 1 trillion after the reduction of taxes by $500 billion.
2) Buying $500 billion of green technologies will just increase the national income by $500 billion as it is directly bought and there is no increase in disposable income as the goods are bought and in...
Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*See Solution
Q: List and describe the 4 new concepts in economics discovered by Keynes.
A: Keynesian economics theory was developed by the British economist John Maynard Keynes in the 1930s. ...
Q: If Standard Oil was a natural monopoly, what would happen to the average cost of producing gasoline ...
A: Natural monopoly is a situation in which the economies of scale are so large that one firm can suppl...
Q: How fast is the per capita real GDP growing for india?
A: The per capita real GDP can be calculated by dividing the real GDP by the population.
Q: c) and d) please
A: * Solving only parts c and d as per requirement.The initial equilibrium is where aggregate demand (A...
Q: 5. Interest, inflation, and purchasing power Suppose Frances is an avid reader and buys only mystery...
A: If purchasing power of ‘Fr’ is $2,000, then the deposit can be calculated as follows:
Q: Where does the untied states get the majority of our gasoline?
A: Click to see the answer
Q: Identify and briefly describe three types of exchanges based on who operates the exchange.
A: Three types of exchange rate are as follows:Fixed Exchange Rate Flexible(floating) Exchange RateMana...
Q: Suppose country A has 5000 units of capital and 2000 units of labor while country B has 6000 units o...
A: The capital or labor abundancy of a country is based on the endowments of one factor related to the ...
Q: Cho's Quantity Supplied Bob's Quantity Supplied Price (Dollars per pair) (Pairs) (Pairs) 10 16 20 16...
A: A supply curve (SS) represents the (+ve) relation between the price and quantity supplied. The suppl...