Assume potential GDP is 3,500 and actual GDP is 3,050. If the consumption function is C=400+0.2Yd , how much does government expenditure need to rise by to close the output gap?
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- Suppose economists observe that an increase in government spending of 700 crore taka that raises the total demand for goods and services by 900 crore taka. If economists ignore the possibility of crowding out effect, calculate the marginal propensity to consume (MPC)? Answer Must be correct. Do all step and calculationConsider an aggregate consumption function in a simple macro model with government and taxes. Given a marginal propensity to consume out of disposable income of 0.77and a net tax rate of 12 percent of national income, the marginal propensity to consume out of national income is ________.Suppose the consumption function is $800 billion +0.8y and the government wants to stimulate the economy. By how much will aggregate demand at current prices shift initially (before multiplier effects) with: a. A $50 billion increase in government purchases b. A $50 billion tax cut c. A $50 increase from income transfers what will the cumulative ad shift be for: d. The increased government spending e. The tat cut f. The increased transfers
- Suppose that the marginal propensity to consume is dC/dy= 0.4 + (1 / sq. root of 3y + 10)(in billions of dollars) and that consumption is $9 billion when disposable income is $0. Find the nationalconsumption function C. Round numbers in your answer to two decimal places when appropriate.Calculate how much output would expand by if the government increased spending by $500 billion and financed this spending by increasing lump-sum taxes by the sameConsider an economy where the marginal propensity to save is 0.15; the marginal propensity to import is 0.05 and the marginal propensity to tax is 0.2. If there is an increase in government spending of $150 million, by how much would national income increase? (a) National income would increase by $350 million (b) National income would increase by $375 million (c) National income would increase by $210 million (d) National income would increase by $240 million
- 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)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 trillionMarginal propensity to consume = 0.8; In an economy with tax rate = 0.25 and Marginal propensity to import = 0.10, how much would an increase of 250 units in autonomous spending increase the equilibrium income level?
- If the marginal propensity to consume (MPC) is 0.80, and if policy makers wish to increase real GDP $200 million, then by how much would they have to change taxes? A.decrease by $240 million. B.decrease by $160 million. C.decrease by $180 million. D.decrease by $50 million.Suppose that autonomous consumption (a) is 300, private investment spending (I) is 420,government spending (G) is 400 , Net taxes (T) are 400 and marginal propensity to consume(b) is 80 %, and marginal tax rate (t) is 25 % . By using the above information: b) Suppose that the potential income level is 2500 in the economy. In this case, what kind offiscal policy you can use to reach the full employment level. (show this numerically andexplain it on your graph)Assume that the economy is in a severe recession with a high level of under-utilized capacity. The estimated overall consumption function is: C = $150 million + 0.9 Y The government estimates that a $180 B increase in Aggregate Demand is necessary to restore the economy to a full-employment level of output. It determines that the best way to do achieve this is through fiscal stimulus. If the government wanted to maintain a balanced budget, would it be able to stimulate the economy through fiscal policy actions? How could it do this?
