Assume a closed economy described by an IS-LM model of the form:IS Y= c(1-t)Y+Ī+bi+G and LM M=kY-hi. Explain why the government expenditure multiplier of this model is smaller than the one in the simpler Keynesian cross model, and why the increased expenditure is said partially to crowd out private investment.

Assume a closed economy described by an IS-LM model of the form:IS Y= c(1-t)Y+Ī+bi+G and LM M=kY-hi. Explain why the government expenditure multiplier of this model is smaller than the one in the simpler Keynesian cross model, and why the increased expenditure is said partially to crowd out private investment.

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 5SQP

See similar textbooks

Similar questions

Given a simple Keynesian spending multiplier of 2, how will GDP (Y) change when business investment increases by $15 billion, exports increase by $5 billion, and government spending drops by $10 billion? Y increases by $20 billion. Y decreases by $20 billion. Y decreases by $10 billion. Y remains unchanged.
Comparing the simple Keynesian model with the IS-LM model, in the IS-LM model a. the balanced budget multiplier is larger. b. the government spending multiplier is larger. c. the tax multiplier is smaller. d. there is no difference between any of the multipliers.
If the consumer function has the form C = 100 + 0.8 (Y-T), where T is the level of lump-sum taxes, then in a simple Keynesian model, when government spending changes by 10 million, IS will shift by:
The effect of the Keynesian multiplier on changes in equilibrium output arising from changes in autonomous spending is overstated when ignoring the IS-MP model because... a. it does not account for the fact that prices such as interest rates are unresponsive to variations in output. b. it assumes that investment always equals savings in equilibrium c. it does not account for the effects that increased demand might have on interest rates and how such changes in the interest rate might affect quantity demand for goods and services, d. it assumes that asset markets are always in equilibrium. pls solve asap
Keynesian cross" exercises Let the economy in our numerical example be: C = 70 + 0.75Y I = 60 Y* = 520 Exercise 1: Add government spending G = 100, not financed by taxes by taxes Show that the new equilibrium income is: Y = 920 What is the government spending multiplier? Exercise 2 : Redo your work assuming that: 1. government spending (G: 100) is financed (in part) by a per capita tax 1. public spending (G: 100) is financed (partly) by a per capita tax (capitation) whose total amount is T=80 and, 2. the marginal propensity to consume is applied to disposable income Calculate the new equilibrium income (Y2) and the disposable income (Y ;) What is the multiplier for the government's balance? Exercise 3: If government spending is financed by a 10% income tax and the propensity to consume is applied to disposable income, calculate the equilibrium income (Y2*) (Y2*) and disposable income (Y;) In this case, what is the government's balance of payments multiplier?
Consider a Keynesian model with consumption function C = 100 + c(Y – T), 0<c<1 where taxes T are given by T = 100 + tY, 0<t<1 with marginal tax rate t. An increase in G will increase equilibrium output by the multiplier: a. 1/(1 – c – c*t) b.1/(1 – c + c*t) c.1/(1 – c*t) d.1/(1 – c)
the closed economy of temasik has the following characteristics: autonomous consumption is rm 100 *marginal propensity to consume is 0.9 * investment expenditure is rm 460 *taxes are constant and equal to rm 400 *goverment purchases of goods and services is rm400 a)find the equilibrium level of real GDP b)suppose the goverment cuts its purchases of goods and services to rm 300.using the multiplier formula,calculate the change in real GDP. c)suppose the goverment maintains its purcase of rm400 worth of goods and services and instead cuts taxes to rm 300. using the multiplier formula,calculate the change in real GDP.
In the Keynesian cross, assume that the consumption function is given by C = 200 + 0.75 (Y − T ). Planned investment is 100; government purchases and taxes are both 100. A. What is the equilibrium level of income? B. If government purchases increase to 125, what is the new equilibrium income? C. What level of government purchases is needed to achieve an income of 1,600?
The Keynesian multiplier relationship Y = 1/ (1-c) is derived from two initial equations: Y = C + I and C= cY. For the multiplier relationship to be acceptable, a. the initial two equations must be acceptable b. saving must be negative c. the algebraic derivation must be correct d. all individuals must receive the same income
In the Keynesian cross model, assume that the consumption function is given by C = 100 + 0.75(Y - T). If government spending increases by AG = 100, what is the increase in output? How does your answer change when the spending increase is financed by an equal increase in taxes?
The fiscal multiplier is higher in the Keynesian Cross model compared to the IS-LM model True or false
Q.1.15 Induced consumption is: (a) the part of consumption which is independent of the level of income.(b) the minimum level of consumption that is financed from sources other than income.(c) The maximum level of consumption that is financed from sources other than income.(d) shown by the slope of the consumption function.Q.1.16 In the Keynesian model, an introduction of a proportional tax will: (a) increase the slope of the consumption function.(b) reduce the multiplier.(c) increase the equilibrium level of income.(d) increase the multiplier.Q.1.17 A decrease in the price level will: (a) shift the AS curve to the left.(b) shift the AD curve to the left.(c) shift the AS curve to the right.(d) leave both the AD curve and the AS curve unchanged. Q.1.18 During(a) increases, increasesan economic expansion, real GDP ____ and unemployment ____. (b) increases, decreases(c) decreases, increases(d) decreases,…