17: Suppose the public authority tries to accomplish a decent financial plan by imposing expenses of $100 billion and making uses of $100 billion. What will this mean for NNP if MPC = 0.8?
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- Explain the difference between the government purchases multiplier and the net tax multiplier. If the MPC falls, what happens to the tax multiplier?Illustrate the concept of Ricardian equivalence using the demand and supply of financial capital graph.5 Suppose the government implements an expansionary fiscal policy to finance e-toll gantries. Required ∆Y = R1 000, the marginal propensity to consume is 50% and the proportional tax rate is 40%. How much will government expenditure have to change to reach the required change in equilibrium income? a. R699 b. R800 c. R1 000 d. R1 200
- Suppose that when government spending increased by $200, total spending in the economy increased by $600. What is the government spending multiplier in this case? a. 3 b. $400 c. $800 d. 1/316. Suppose that planned investment and planned government purchases do not depend on income:I = 15 and G = 17. Consumption, as you would expect, does depend on income via the consumption function C = 2 + 0.75Y – 0.75T. Net taxes are T = 12. Your friend thinks that the equilibrium will be where Y = 150 but he is wrong. What is the best description of this situation? a. the (Y, AE) point is above the 45 degree line, Y will adjust down b. the (Y, AE) point is above the 45 degree line, Y will adjust up c. the (Y, AE) point is below the 45 degree line, Y will adjust down d. the (Y, AE) point is below the 45 degree line, Y will adjust up 17. (continued) Help you friend by calculating the equilibrium income for the AE model in the previous question. Y = _____a. Suppose that in an economy with no government, the aggregate expenditurefunction is: AE = 50+0.75Y with an investment level of 100.i. Determine the level of planned expenditure when income is 150.ii. Draw a diagram showing the aggregate expenditure functioniii. What are the levels of autonomous consumption and inducedconsumption at income levels of 150 and 200.b. An open economy with a government sector is in equilibrium. Assume thefollowing:1. Marginal propensity to save = 0.42. Marginal propensity to tax = 0.23. Marginal propensity to import = 0.2i. Solve for the value the government multiplier ii. Determine by how much the equilibrium level of national incomewould fall, if injections in the economy are reduced by Ks.60m.iii. Determine the new level of income if taxes increased by KS. 20c. Propose four reasons why economists should not consider GDP an effectivemeasure of the standard of living in a country.
- 1. If the MPC is .75, the government spending multiplier is Group of answer choices 2.5. 3 1.75 4 2. If the government spending multiplier is 4 and government purchases increase by $200 billion, output will increase by Group of answer choices $200 billion. $1,600 billion. $800 billion. $500 billion.Q.3.1 Government spending (as a percentage of gross domestic expenditure) hasincreased significantly over the past decades. Explain any two reasons for thistrend.Q.3.2 The increased government spending noted in Q.3.1. above has to be financed inone way or another.Describe three ways in which government spending can be financed.1. The difference between what a government spends and what it collects in taxes in a year is Group of answer choices the government budget deficit or surplus. the government debt. net revenue. net taxes. 2. The aggregate consumption function is C = 100 + 0.6Yd. If income is $1,000 and net taxes are $300, consumption equals Group of answer choices 800. 580. 700. 520.
- 6. Suppose consumption is $10,000 when income is $9,000 and the marginal propensity to saveequals 0.1. When income increases to $9,500, consumption will be:(A) $8,500. (B) $10,450. (C) $10,500. (D) $10,050.If the government increases defense spending by $1 billion and the MPC is 0.8, how much additional spending will occur in the third “round” of spending? a. $1 billion b. $1.8 billion c. $800 million d. $640 million1. Consider an economy with the initial equilibrium income level of $1000 and the consumption function of C = $150 + 0.6 (Y - T). Find the following quantities:a. Government expenditures at the equilibrium level of income if T = $160 and I = $100.b. The change in income produced by increasing taxes 10%, provided that G and I remain unchanged. What is the tax multiplier?c. The change in income produced by increasing government expenditures 10%, provided that T and I remain unchanged. What is the government spending multiplier?d. Based on your answers to (b) and (c), does the balanced budget multiplier theorem hold?
