5. Consider an economy that is characterized by the following equations:Y=C+I+G+ NXY = 6,000, G = 2500, CT = 0.5C, LT = 2,000C = 500+ 0.5(Y-T)T = CT + LT1 = 900 - 50rNX = 1,500 250€r=r' = 8Note that CT is the total consumption tax given by 0.5C indicating that every $1 of consumption istaxed at 50 cents. LT is the lump-sum tax. The total tax, T, is the sum of CT and LT. (c)Now suppose that the world interest rate falls from 8% to 3%. G is again 2500. Solve foprivate saving, public saving, national saving, investment, the trade balance and theequilibrium exchange rate. Explain what you find.

Trade balance shows the balance of exports and imports of any country if the export is more than…

5. Consider an economy that is characterized by the following equations: Y=C+I+G+ NX Y = 6,000, G = 2500, CT = 0.5C, LT = 2,000 C = 500+ 0.5(Y-T) T = CT + LT I=900 - 50r NX = 1,500-250€ r=r² = 8 Note that CT is the total consumption tay given by 056 indicating that every $1 of consumption

5. Consider an economy that is characterized by the following equations: Y=C+I+G+ NX Y = 6,000, G = 2500, CT = 0.5C, LT = 2,000 C = 500+ 0.5(Y-T) T = CT + LT I=900 - 50r NX = 1,500-250€ r=r² = 8 Note that CT is the total consumption tay given by 056 indicating that every $1 of consumption

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 2.9P

See similar textbooks

Similar questions

Assume that the newly independent government of Tanzania employed you in 1964. Now free from British rule, the Tanzanian parliament has decided that it will spend 10 million shillings on schools, roads, and healthcare for the year. You estimate that the net taxes for the year are eight million shillings. The government will finance the difference by selling 10-year government bonds at 12% interest per year. Parliament must add the interest on outstanding bonds to government expenditure each year. Assume that Parliament places additional taxes to finance this increase in government expenditure so the gap between government spending is always two million. If the school, road, and healthcare budget are unchanged, compute the value of the accumulated debt in 10 years.
Specify whether expansionary or contractionary fiscal policy would seem to be most appropriate in response to each of the situations below and sketch a diagram using aggregate demand and aggregate supply curves to illustrate your answer: A recession. A stock market collapse that hurts consumer and business confidence. Extremely rapid growth of exports. Rising inflation. A rise in the natural rate of unemployment. A rise in oil prices.
Suppose that gifts were taxed at a rate of 10 for amounts up to 100,000 and 20 for anything over that amount. Would this tax be regressive or progressive?
Assume there is no discretionary increase in government spending. Explain how an improving economy will affect the budget balance and, in turn, investment and the trade balance.
Use the following information to answer questions 1, 2, and 3. Suppose that the government of Uplandia is experiencing a large budget deficit with fixed government expenditures of G=375 and fixed taxes of T= 225. Assume that consumers of Uplandia behave as described in the following consumption function: C = 450 + 0.96 (Y - T) Suppose further that investment spending is fixed at 300. 1. Calculate the equilibrium level of GDP in Uplandia. Solve for equilibrium levels of Y, C, and S. 2. Next, assume that the National Congress in Uplandia succeeds in reducing taxes by 89 to a new fixed level of 136. Recalculate the equilibrium level of GDP using the tax multiplier. 3. Solve for equilibrium levels of Y, C, and S after the tax cut and check to ensure that the multiplier worked.
1. 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?
Assume that, without taxes, the consumption schedule for an economy is as shown in the first two columns of the table below. Suppose that a lump-sum (regressive) tax of $10 billion is imposed at all levels of GDP. a. Calculate the tax rate at each level of GDP and enter the tax, disposable income, consumption, and tax rate in the table.Instructions: For the tax, disposable income, and consumption after tax, enter your answers as whole numbers. For the tax rate, round your answers to 2 decimal places.SEE PICTURE!!! b. Compare the MPC and the multiplier with those of the pretax consumption schedule. Instructions: For the MPC, round your answers to 1 decimal place. For the multiplier, enter your answers as whole numbers. SEE PICTURE!!!
Suppose that the government of Uplandia is experiencing a large budget deficit with fixed government expenditures of G=375 and fixed taxes of T= 225. Assume that consumers of Uplandia behave as described in the following consumption function C = 450 + 0.96 (Y - T). Suppose further that investment spending is fixed at 300. a. Calculate the equilibrium level of GDP in Uplandia. Solve for equilibrium levels of Y, C, and S. b. Next, assume that the National Congress in Uplandia succeeds in reducing taxes by 89 to a new fixed level of 136. Recalculate the equilibrium level of GDP using the tax multiplier c. Solve for equilibrium levels of Y, C, and S after the tax cut and check to ensure that the multiplier worked.
(a) Assume Consumption (C) is given by the equation C = 500 + 0.6(Y – T). Taxes (T) are equal to 600. Government spending is equal to 1,000. Investment is given by the equation I = 2,160 – 100r, where r = the real interest rate = 13 percent. In this case, what is the equilibrium Gross Domestic Product (GDP)/Total output (Y)/Total income? How does the equilibrium income change if government designs and executes expansionary fiscal policy? Show graphically and mathematically.
1) Assume that Canadian government taxes away $0.15 of each dollar of new income, that 35% of the remaining $0.85 of disposable income is spent on imports, and that 2% of disposable income is saved. Enter your responses below rounded to 2 decimal places. a. The marginal propensity to withdraw is . b. From each new dollar of income $ is spent on domestic consumption items.c. The value of the Canadian spending multiplier is . 2) In each case below a particular fiscal policy affects an economy's AD curve via the spending multiplier. Calculate the spending multiplier and find the direction and size of the shift in the AD curve. Enter your responses for the spending multiplier rounded to 2 decimal places, and size of the shift of the AD curve rounded to 1 decimal place. Do not put minus signs in your answers. a. If government purchases increase by $3 billion in an economy with an MPW of 0.65 then the spending multiplier is and the AD curve finally shifts to the by $…
Suppose that the government of Ansonia is experiencing a large budget deficit with fixed government expenditures of G=250 and fixed taxes of T=150. Assume that consumers of Ansonia behave as described in the following consumption function: C=300+0.8(Y−T) Suppose further that investment spending is fixed at 200. Calculate the equilibrium level of GDP in Ansonia. Solve for equilibrium levels of Y, C, and S. Next, assume that the Republican Congress in Ansonia succeeds in reducing taxes by 30 to a new fixed level of 120. Recalculate the equilibrium level of GDP using the tax multiplier. Solve for equilibrium levels of Y, C, and S after the tax cut and check to ensure that the multiplier worked. What arguments are likely to be used in support of such a tax cut? What arguments might be used to oppose such a tax cut? Thank you sososooo much!
For questions #9, 10, 11, and 12 use the following equation. C = 20 + 0.2(Y – T) 9) What is the marginal propensity to save for this economy? a) 2% b) 20% c) 60% d) 80% ( plz show the equation and how you use the numbers from the equation to solve it)10) What is the tax multiplier for this economy? a) -0.25 b) 0.25 c) -1.25 d) 1.25 11) If the government increases taxes by 20, then how much will consumption change by? a) -5 b) 5 c) -25 d) 25 12) To increase real GDP by 40 the government needs to change government spending by a) 48 b) 40 c) 32 d) 20