government announces a green budget where they will provide zero interest loans for private sector investment in green electricity production, spend on government investment in rail transport and increase value added tax on all consumer goods with a high carbon footprint. Use the multiplier model (diagram and equations) to explain the likely effect on aggregate demand in the economy. Assume ceteris paribus. In your answer explain how you are interpreting ‘ceteris. paribus.’ when discussing the predictions of the multiplier model.

government announces a green budget where they will provide zero interest loans for private sector investment in green electricity production, spend on government investment in rail transport and increase value added tax on all consumer goods with a high carbon footprint. Use the multiplier model (diagram and equations) to explain the likely effect on aggregate demand in the economy. Assume ceteris paribus. In your answer explain how you are interpreting ‘ceteris. paribus.’ when discussing the predictions of the multiplier model.

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter15: Fiscal Policy

Section: Chapter Questions

Problem 17SQ

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Similar questions

) A government announces a green budget where they will provide zero interest loans for private sector investment in green electricity production, spend on government investment in rail transport and increase value added tax on all consumer goods with a high carbon footprint. Use the multiplier model (diagram and equations) to explain the likely effect on aggregate demand in the economy. Assume ceteris paribus. In your answer explain how you are interpreting ‘cet. par.’ when discussing the predictions of the multiplier model.
Question #4 - Use the aggregate expenditures model to demonstrate the multiplier effect.
Assume the Potential GDP is $15 trillion dollars. Use the table below to answer the following questions. Assume all values represent trillions of dollars. Use the table to create two graphs: 1. aggregate expenditure model and 2. an aggregate supply aggregate demand model. Note that the equilibrium in the table above will determine your real GDP and your potential GDP should be plotted in both graphs. What type of macroeconomic equilibrium does this economy reflect? Note that the multiplier is 2 because this economy has imports. If Investment expenditures increase by $2.5, how much does GDP increase? Does the increase in investment expenditures from part C result in a full employment equilibrium? Why? Graphically show the effects from part C in our Aggregate Expenditure Model and Aggregate Supply-Aggregate Demand Model.
Consider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The following graph shows the economy's initial aggregate demand curve (AD1AD1). Suppose the government increases its purchases by $3 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2AD2) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2AD2) is parallel to AD1AD1. You can see the slope of AD1AD1 by selecting it on the following graph. Suppose that for each one-percentage-point increase in the interest rate, the level of investment spending declines by $0.5 billion. The change in the interest rate (according to the change you made to the money market in the previous scenario) therefore causes the level of investment spending to Fall/Rise by 2 ,1, or 0.5 Billion. After the multiplier effect is accounted for, the change in investment spending…
Consider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The following graph shows the economy's initial aggregate demand curve (AD1AD1). Suppose the government increases its purchases by $3 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2AD2) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2AD2) is parallel to AD1AD1. You can see the slope of AD1AD1 by selecting it on the following graph.
Suppose that the price level is constant and that investment decreases sharply. How would you show this decrease in the aggregate expenditures model? What would be the outcome for real GDP? How would you show this fall in investment in the aggregate demand–aggregate supply model, assuming the economy is operating in what, in effect, is a horizontal section of the aggregate supply curve?
Consider a demand-driven economy. Question text If there is an increase in the marginal propensity to consume, this will also increase the multiplier. Question 9Select one: True False Question text If there is an unexpected drop in autonomous consumption, one of the immediate effects of this will be that inventory levels decrease. Question 10Select one: True False Question text If the government tries to stimulate the economy by making money transfers to citizens, this will directly enter into GDP. Question 11Select one: True False Question text The equation AD = c0 + I + c1Y can be thought of as representing the total expenditure in a closed economy with no government. Question 12Select one: True False
Explain how an upsloping aggregate supply curve weakens the realized multiplier effect from an initial change in investment spending.
From a spending model perspective, explain the causes of a recession
If the MPC in an economy is .8, the increase in real GDP can occur (aggregate demand curve can shift rightward) by $100 billion by doing which of the following: Group of answer choices increasing government spending by $80 billion. increasing government spending by $25 billion. increasing government spending by $20 billion increasing taxes by $25 billion.
Match the following terms ( terms are labeled 1-10 )to the correct definition(definitions are labeled a through J) aggregate consumption function, multiplier, planned aggregate expenditure (PAE), income-expenditure equlibrium GDP, marginal propensity to consume (MPC), consumption function, unplanned inventory investment, actual investment spending,inventory, autonomous spending A) The amount by which consumption rises when disposable income rise by one dollar marginal propensity to consume (MPC) B) The level of output (real GDP) at which output (real GDP) equals planned aggregate expenditure. income-expenditure equlibrium GDP C) The ratio of total change in real GDP caused by an autonomous change in aggregate spending. multiplier D) Total planned spending on final goods and services in the economy. aggregate consumption function E) The equation showing how individual household's consumer spending varies with its current disposable income. consumption function F) Consumption…
Please write down whether the following statements are true or false, and explain your answer very briefly A)If actual investment is greater than planned investment, inventories increase more than planned. B)The marginal propensity to consume is the change in consumption expenditure divided by the percentage change in income. C)Gross domestic product (GDP) is the value of all goods and services produced in an economy over a particular time period. D)Monetary policy refers to taxation and spending policies implemented by government. E)In a simple Keynesian model (with lump-sum taxes and a MPC of 0.8), a tax cut of 20 billion TL will have less of an impact on GDP than an increase in government spending of 10 billion TL. D)When you take 1000 TL from your savings account and deposit it in your checking account, M2 decreases. F)An open market purchase of government securities (such as Treasury Bills) by the Central Bank will decrease the money supply and raise the interest rate.…