4. Explain the effect of a discretionary cut in taxes of $40 billion on the economy when the economy'sMPC is .60. How does this discretionary fiscal policy differ from a discretionary increase ingovernment spending of $40 billion? (Answer this question by filling and circling answers below.)A tax cut of $40 billion will result in initial increase in consumption of $$MPC=MPS). Then .40 × $40 = $result in an increase in consumption spending of $billion. (Note thatBil. is saved based on marginal propensity to save (MPS), that is .40 (because 1-billion). This initial increase in spending will ultimatelybillion because of the multiplierprocess.In contrast, an initial increase in government spending of $40 billion will ultimately increaseconsumer spending by $savings as would be the case with a $40 billion tax cut.billion because none of the initial increase is siphoned off as

4. Explain the effect of a discretionary cut in taxes of $40 billion on the economy when the economy's MPC is .60. How does this discretionary fiscal policy differ from a discretionary increase in government spending of $40 billion? (Answer this question by filling and circling answers below.) A tax cut of $40 billion will result in initial increase in consumption of $_ billion. (Note that Bil. is saved based on marginal propensity to save (MPS), that is .40 (because 1- billion). This initial increase in spending will ultimately billion because of the multiplier MPC=MPS). Then .40 × $40 = $ result in an increase in consumption spending of $ process. In contrast, an initial increase in government spending of $40 billion will ultimately increase consumer spending by $ savings as would be the case with a $40 billion tax cut. billion because none of the initial increase is siphoned off as

4. Explain the effect of a discretionary cut in taxes of $40 billion on the economy when the economy's MPC is .60. How does this discretionary fiscal policy differ from a discretionary increase in government spending of $40 billion? (Answer this question by filling and circling answers below.) A tax cut of $40 billion will result in initial increase in consumption of $_ billion. (Note that Bil. is saved based on marginal propensity to save (MPS), that is .40 (because 1- billion). This initial increase in spending will ultimately billion because of the multiplier MPC=MPS). Then .40 × $40 = $ result in an increase in consumption spending of $ process. In contrast, an initial increase in government spending of $40 billion will ultimately increase consumer spending by $ savings as would be the case with a $40 billion tax cut. billion because none of the initial increase is siphoned off as

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 5P

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Similar questions

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