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Economics For Today

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter21: Fiscal Policy

Section: Chapter Questions

Problem 4SQ

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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:

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Consider a simple Keynesian model with taxation. Suppose the marginal rate of tax is 0.2 and the marginal propensity to consume is 0.5. Then a decrease in investment expenditure of 100 units will: Group of answer choices None of the other options Increase equilibrium output by approximately 150 units Increase equilibrium output by approximately 167 units Decrease equilibrium output by approximately 150 units
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)
According to traditional Keynesian analysis, a tax cut has a larger effect on aggregate demand than an increase in government expenditures of the same size. a.true b.false
Consider a Keynesian model but where investment (just like consumption) is increasing in aggregate income, e.g., because investment depends on business cash flow. Now that investment depends on aggregate income, a fiscal stimulus has more effect on equilibrium output.Answer true, false, or uncertain. Please briefly explain your answer
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.. 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.
Consumption, investment, government spending, exports, and imports are: Group of answer choices all complementary elements of a market-orientated economy. some of the opposing elements found in a market-orientated economy. all components of aggregate demand. some of the building blocks of Keynesian analysis.
Consider the Keynesian Cross model. If the fiscal multiplier equals 2, and the government decides to increase government purchases by 100, by how much would equilibrium output increase?
If the simple Keynesian macroeconomic model is used to explain expansionary fiscal policy, which of the following can be concluded with regard to macroeconomic equilibrium? a) That firms experience an unplanned increase in their inventories. b) The economy will move towards equilibrium. c) Inventory levels will rise above the equilibrium level. d) The effect on equilibrium cannot be determined given the information given
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
If the Keynesian multiplier is defined as 1/ (1-c) where c is the proportion of income that is consumed, then when c increases, a. the multiplier decreasesb. income declines c. the multiplier increases d. investment increases
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 marginal propensity to consume is 0.9, then the tax multiplier will be: Group of answer choices impossible to determine. greater than 10. less than 10. zero, because there is no multiplier effect from taxes.

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