7) If investment falls a lot when the interest rate rises, there will be A) a steeper investment curve. B) a steeper LM curve. C) more crowding-out effect. D) more effective fiscal policy.
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- Given MPC (marginal propensity to consume) = 0.75, if the government implements an expansionary fiscal policy as (1) cutting taxes by $10 billion, then by how much would total spending increase over an infinite period? (2) spending $10 billion, then by how much would total spending increase over an infinite period?Assume a contradictory gap of $4 trillion. With MPC equal to 0.75, what would be the recommended fiscal policy action in order to return output to full employment levels? a. Increase taxes by $4 trillion b. Decrease spending by $1 trillion c. Increase spending by $1 trillion d. Purchase $1 worth of government securities e. Decrease taxes by $4 trillionConsider an economy in which the government wants to do tight (contractionary) fiscal policy by changing taxes by $4000. If the average citizen spends 80 percent of each dollar of income, what will be the total effect on output Y? Carefully follow all numeric directions. Use a negative number (with negative sign) to depict an increase in Y and a positive number (no sign) to depict a decrease.
- Assume a contradictory gap of $4 trillion. With MPC equal to 0.75, what would be the recommended fiscal policy action in order to return output to full employment levels?Question 72 If the MPC is 0.71 and taxes decrease by $5,103, holding all else constant, real GDP will change by _____ according to the multiplier effect. Please round to 2 decimal places. Be sure to include a negative sign (-) if it is a decrease and do not include a dollar sign ($) when answering. Question 73 Assume a government starts with zero debt. This government then runs an annual deficit for 29 years of $4,511. At the end of those 29 years, what would be amount of the government debt? Please round to 2 decimal places if needed. Be sure to include a negative sign (-) if it is a decrease and do not include a dollar sign ($) when answering.Suppose that the national economy is experiencing a recession with an estimated recessionary gap of $10 billion. Congress is considering the use of fiscal policy to ease the recession, and due to current political sentiments, it has determined that the maximum spending increase the government is willing to support is $3 billion. The government wants to make up the remainder of the recessionary gap using tax cuts. If a spending increase of $3 billion is approved and the MPC is 0.6, by how much will taxes need to be reduced to close the remainder of the recessionary gap?
- How much government spending needs to be increased to maintain full employment in the economy if the economy was facing recessionary gap of $800 billions? Assume MPC is .8. How much tax cut should government give if they wanted to eliminate this recessionary gap through tax cutSuppose that there are no crowding out effects and the MPC is .7. By how much must the government increase expenditures to shift the aggregate demand curve right by $10 billion?If the president and parliament agree on a policy to increase the budget deficit by increasing government expenditure while holding taxes constant: 1. What impact will this expansionary fiscal policy have on output and interest rates? 2. Is the shift an IS or LM or both
- Suppose the MPC is 0.8 and the crowding out effect is $30 billion. The government aims to increase GDP by $250 billion. a) Calculate the fiscal multiplier b) how much the government needs to increase spending to increase GDP by $250 billionDiscretionary fiscal policy and multiplier effects Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.8. The following graph shows the aggregate demand curves (AD1AD1 and AD2AD2), the short-run aggregate supply curve (SRASSRAS), and the long-run aggregate supply curve (LRASLRAS). The economy is currently at point A. The economy is currently experiencing an expansionary a recessionary gap of $ billion. In order to close this gap, one option would be for the government to decrease increase government purchases by billion (assuming net taxes do not change).If the Marginal Propensity to Consume (MPC) is .90, estimate the total (multiplied) effect of government purchases/spending of $100B in the economy in terms of its aggregate expenditure (Hint: Multiplier = 1 / 1 – MPC). Calculate the net cumulative change in aggregate expenditure if taxes were cut by $200 billion and MPC is estimated to be .75. What if government expenditure was increased by $200 billion? (Hint: Total change in expenditure = multiplier x new expenditure or spending injection)
