Assume that a hypothetical economy with an MPC of 0.8 is experiencing severe recession. 1 Money Multiplier (K) = = 1-MPC Total Change in Spending = multiplier × new spending injection 1) Determine one possible combination of government spending increases and tax decreases that would accomplish this same goal.
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- Assuming that the money demand function depends on income, the interest rate and the price level as presented in class, then if planned investment decreases as the interest rate increases, the size of the government spending multiplier for expansionary fiscal policy will be________ than it was when we ignored the money market. a)exactly the same b)larger c)smallerThe formula for the tax multiplier is: -MPS/MPC. MPS/MPC. -MPC/MPS. -1/MPS. A government policy action that moves the economy closer to full employment or potential output is called: an aggregate supply policy. an expansionary policy. a stabilization policy. a contractionary policy. All else constant, if the GDP in an economy decreases then: demand for money increases. demand for money decreases. the quantity demanded for money increases. the quantity demanded for money decreases. If the marginal propensity to consume is 0.8, the value of the multiplier is: 5. 1.25. 2. 0.8.Assume that the consumption function is given by C = 200 + 0.5(Y – T) and the investment function is I = 1,000 – 200r, where r is measured in percent, G equals 300, and T equals 200.Assume that the equilibrium in the money market may be described as M/P = 0.5Y – 100r, and M/P equals 800. Calculate the equilibrium r and Y. Calculate the government spending multiplier.
- Use an open-economy ISLM framework to graph and explain the overall effect of expansionary fiscal policy on y and r in an economy characterized by a relatively interest-sensitive money demand function. Also consider the impact of this policy on the distribution of output among spending sectors.Question 40 According to liquidity preference theory, if the price level increases, then the equilibrium interest rate Answer rises and the aggregate quantity of goods demanded rises. rises and the aggregate quantity of goods demanded falls. falls and the aggregate quantity of goods demanded rises. falls and the aggregate quantity of goods demanded falls. Question 41 If the MPC = 3/5, then the government purchases multiplier is 5/3 5/2 5 1.5 Question 42 If the multiplier is 5, then the MPC is Answer 0.05 0.5 0.6 0.8 Question 43 In a certain economy, when income is $200, consumer spending is $145. The value of the multiplier for this economy is 6.25. It follows that, when income is $230, consumer spending is Answer $151.25. $166.75. $170.20. $175.00. Question 44 If the MPC is 0.80 and there are no crowding-out or accelerator effects, then an initial increase in aggregate demand of $100 billion will eventually shift the aggregate demand curve to the right by Answer $80 billion.…Prepare a mathematical presentation to show the relationship between the output and policy rate. - firstly derive the aggregate expenditures equation. - explain the role of the Keynesian multiplier - explain the policy rate-multiplier interaction. - finally how monetary policy effects on output through multiplier.
- The practical significance of the spending multiplier is that it: Question 54 options: helps to stabilize the economy minimizes the unemployment rate magnifies initial changes in spending into larger changes in real output brings about an equality of injections and withdrawals keeps inflation within tolerable limitsThe following parameters describe the structure of a hypothetical economy: Autonomous consumption=240 Autonomous investment=1000 Autonomous taxes=100 Autonomous government expenditure=400 Real money supply (M/P)=600 Tax rate=0.25 Marginal propensity to consume=0.8 Interest elasticity of investment=50 Interest elasticity of demand for money=62.5 Income elasticity of demand for money=0.25 a) Determine and explain the relative effectiveness of fiscal and monetary policies and State the values of the fiscal and monetary policy multipliers if the economy is in a liquidity trap. Explain. b) Use your answer in part a) above to determine equilibrium income and interest rate. c) If government expenditure is increased by 150 units, show how equilibrium interest rate and equilibrium income will change. Can you determine the extent to which investment is crowded out as a result? Explain."Suppose the parameters of the IS curve are a=0, b=3/4, and the MPK is r = 2%. Suppose also that initially the Fed sets the (real) interest rate equal to the MPK. Draw the IS-MP diagram and label the initial equilibrium as point A. Now suppose the government adopts fiscal austerity measures and cuts its spending. As a result, aG falls by 5 percentage points, from 27% to 22% of GDP. Shift the necessary curves in the IS-MP diagram and label the new equilibrium as point B. How will SRO be affected?" It will fall by 5 percentage points It will fall by 3 percentage points It will increase by 4 percentage points None of the other options Note:- Please avoid using ChatGPT and refrain from providing handwritten solutions; otherwise, I will definitely give a downvote. Also, be mindful of plagiarism. Answer completely and accurate answer. Rest assured, you will receive an upvote if the answer is accurate.
- "Suppose the parameters of the IS curve are a=0, b=3/4, and the MPK is r = 2%. Suppose also that initially the Fed sets the (real) interest rate equal to the MPK. Draw the IS-MP diagram and label the initial equilibrium as point A. Now suppose the government adopts fiscal austerity measures and cuts its spending. As a result, aG falls by 5 percentage points, from 27% to 22% of GDP. Shift the necessary curves in the IS-MP diagram and label the new equilibrium as point B. How will SRO be affected?" It will fall by 5 percentage points It will fall by 3 percentage points It will increase by 4 percentage points None of the other optionsWhen there is a problem of a delay in terms of implementation of the fiscal policy, that would be categorized as _____. execution lag information lag decision lag Fiscal policy nowadays are focused on eliminating GDP gap True False When the Central Bank controls the money supply by controlling the amount of high-powered money in the economy, that is called _____. interest rate fixation selective credit control open market operations required reserves ratio policy The focus of monetary policy nowadays is by using interest rate as an indicator. True FalseConsider the IS-LM Investment and savings Liquidity and money preference model to represent the economy in the short run. Consider the IS-LM model to represent the economy in the short run. B. Consider now government intervention with the aim not only to protect people and firms but also to sustain the economy. Discuss the role of fiscal policy to sustain demand. Use a diagram to support your arguments.