I could use some help finding the government's budget balance. Questions 4-7. An economy with no government is described by the following:• Marginal propensity to consumer = 0.8Marginal propensity to import = 0.2Autonomous expenditure = 500• Potential GDP = 15001. The aggregate expenditure function is thus AE =5000.6Y.2. The multiplier is 13. Equilibrium GDP is Y =12504. The output gap is -2505. There is a recessionary + output gap.Suppose now a government is established:Tax rate = 12.5%• Government expenditure = 1001. The new aggregate expenditure function is AE =100.125Y2. The new multiplier is83. The new equilibrium GDP is Y =114.294. The new output gap is1385.715. The government's budget balance function is BB =6. The government's budget balance at the equilibrium iswhich is a7. The structural budget balance is SBB =which is a8. What level of government spending would close the output gap?9. As a result, the government's new (structural) budget balance is10. If the government does not want to increase expenditure to close the output gap, analternative option would be todecrease +taxes

Balanced Budget function is the function of government expenditures and revenues which depicts that…

An economy with no government is described by the following: • Marginal propensity to consumer = 0.8 • Marginal propensity to import = 0.2 • Autonomous expenditure = 500 • Potential GDP = 1500 1. The aggregate expenditure function is thus AE = 500 0.6 Y. 2. The multiplier is 1

An economy with no government is described by the following: • Marginal propensity to consumer = 0.8 • Marginal propensity to import = 0.2 • Autonomous expenditure = 500 • Potential GDP = 1500 1. The aggregate expenditure function is thus AE = 500 0.6 Y. 2. The multiplier is 1

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter21: Fiscal Policy

Section: Chapter Questions

Problem 20SQ

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The federal government implements an expansionary fiscal policy of increased spending and decreased taxes. Policy advisors predict output will increase 4% but are surprised when only 3% growth occurs. What might account for the fact that GDP increased by less than the multiplier predicted? a. Policy advisors' calculation of MPS was too high b. The aggregate supply curve was perfectly elastic c. Foreign purchases of domestic goods was greater than expected due to a devalued currency d. Consumption increases more than expected because of the decrease in taxes e. Investment decreased due to rising interest rates
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)
suppose that the real GDP of a country is in equilibrium at $480 billion. now suppose that planned investment decreases by $4 billion and that this decrease cause real GDP to shift to a new equilibrium level of $470 billion a. what is the spending multiplier for this country? b. what is the marginal propensity to save(mps) for this country?
Consider an economy described by the following equations: C = 300 + 0.90 (Y – T) (Consumption) I = $200 (Investment) G = $300 (Government spending) T = $200 (Taxes) Determine the equilibrium level of national income. Suppose government spending increases to $400. What is the new level of income? What is the government spending multiplier? Suppose taxes increase to $300. What is the new level of income? What is the government tax multiplier? Based on your answers to (b) and (c), does the balanced budget multiplier theorem hold?
Given the above model for an economy C = 100 + 0.8Yd G = 800 T = 500 I = 200 c)Find Tax multiplier. d)Find the new level of output if the lump-sum tax is increased by 100 (ΔT = 100). f)Find the new level of output if the government spending is increased by 100 and this government expenditure increase is financed by the same amount of increase in lump-sum taxes (ΔG = ΔT = 100).
Assuming no crowding-out, investment-accelerator, or multiplier effects, a $100 billion increase in government expenditures shifts aggregate demand a. right by $100 billion. b. left by $100 billion. c. left by more than $100 billion. d. right by more than $100 billion.
Why might politicians prefer government spending increases instead of tax cuts to increase aggregate demand? tax multipliers are larger than government spending multipliers government spending multipliers are larger than tax multipliers politicians can direct government spending to their supporters politicians can direct tax cuts to their supporters government spending multipliers are larger than tax multipliers and politicians can direct government spending to their supporters
In each of the following cases, calculate the spending multiplier and determine the size and shift of each fiscal policy on the AD (aggregate demand) curve. a. Government increases spending by $4 billion in an economy with a MPW of 0.7b. Government spending decreases by $2 billion in an economy with a MPC of 0.65.c. Government increases taxes by $3 billion in an economy with a MPW of 0.35d. A $5 billion tax cut causes an initial increase in spending of $1.5 billion.
Suppose the government reduces taxes by $20 billion and that there is no crowding-out effect and the MPC is .75 then the total effect of the tax cut on aggregate demand is a) 50 billion b) 60 billion c) 70 billion d) 80 billion
Given the above model for an economy C = 100 + 0.8Yd G = 800 T = 500 I = 200 a) Calculate the level of savings when the economy is in equilibrium. b) Find government spending multiplier. c) Find the new equilibrium level of output if investment is increased by 100 (ΔI = 100). d) Find Tax multiplier. e) Find the new level of output if the lump-sum tax is increased by 100 (ΔT = 100). f) Find the new level of output if the government spending is increased by 100 and this government expenditure increase is financed by the same amount of increase in lump-sum taxes (ΔG = ΔT = 100).
Given the following model for an economy C = 100 + 0.8Yd G = 800 T = 500 I = 200 a) Find Tax multiplier. b) Find the new level of output if the lump-sum tax is increased by 100 (ΔT = 100). c) Find the new level of output if the government spending is increased by 100 and this government expenditure increase is financed by the same amount of increase in lump-sum taxes (ΔG = ΔT = 100).
Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would a. always shift aggregate demand right by a smaller amount than the increase in government expenditures. b. always shift aggregate demand right by a larger amount than the increase in government expenditures. c. shift aggregate demand right by a larger, equal, or smaller amount than the increase in government expenditures. d. always shift aggregate demand right by the same amount as the increase in government expenditures.