At the insistent urging of President Obama, Congress has enacted massive spending bills totaling over $1 Trillion. This is sold to the public as “economic stimulus”. What is the purpose of this orgy of spending? Explain the macroeconomic rationale for this action by the Federal government, as justified by the economic theory

At the insistent urging of President Obama, Congress has enacted massive spending bills totaling over $1 Trillion. This is sold to the public as “economic stimulus”. What is the purpose of this orgy of spending? Explain the macroeconomic rationale for this action by the Federal government, as justified by the economic theory

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter15: Fiscal Policy

Section: Chapter Questions

Problem 6SQ

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Suppose actual real GDP is $13.56 trillion, potential real GDP is $12.34 trillion, and the marginal propensity to consume is 0.74. If we ignore price effects, and if the government already decided to increase its spending by $1.90 trillion, by how many trillions of dollars should the government change its lump sum taxes to fix the gap? (Round this to two digits after the decimal and enter this value as either a positive value or a negative value without the dollar sign.)
In each of the following cases, either a recessionary or inflationary gap exists. Assume that the aggregate supply curve is horizontal, so that the change in real GDP arising from a shift of the aggregate demand curve equals the size of the shift of the curve. Calculate both the change in government purchases of goods and services and the change in government transfers necessary to close the gap. a. Real GDP equals $100 billion, potential output equals $160 billion, and the marginal propensity to consume is 0.75. b. Real GDP equals $250 billion, potential output equals $200 billion, and the marginal propensity to consume is 0.5. c. Real GDP equals $180 billion, potential output equals $100 billion, and the marginal propensity to consume is 0.8. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Suppose the economy has a recessionary gap. By using an expansionary fiscal policy, the Federal Government can close this gap by A.)increasing government spending in order to increase aggregate demand. B.)reducing taxes in order to stimulate investment, and thus increase aggregate supply. C.)increasing government spending and taxes in order to both increase aggregate demand and aggregate supply D.)decreasing government spending in order to increase aggregate supply.
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If the MPS in an economy is .4, government could shift the aggregate demand curve leftward by $50 billion by: reducing government expenditures by $125 billion. reducing government expenditures by $20 billion. increasing taxes by $50 billion. increasing taxes by $250 billion.
Suppose actual real GDP is $13.19 trillion, potential real GDP is $12.96 trillion, the marginal propensity to consume is 0.75, and that the government has a balanced budget. If we ignore price effects, by how many trillions of dollars should the government change its spending to fix the gap while keeping the federal budget balanced? (Round this to two digits after the decimal and enter this value as either a positive value or a negative value without the dollar sign.)
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Differentiate the macroeconomic effects, multiplier and crowding effect, that explain the causes of the differences of government spending in aggregate demand.