Help!! If the government purchases multiplier equals 2, and real GDP is $14 trillion withpotential GDP $14.5 trillion, then government purchases would need to increase byto restore the economy to potential GDP.A)$7.25 trillionB)$1 trillionC)$500 billionD)$250 billionE)None of the above.

here we can calculate the change in government purchase and choose the correct option which are as…

Answered: If the government purchases multiplier…

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 1.5P: Explain the difference between the government purchases multiplier and the net tax multiplier. If...

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Similar questions

Explain the difference between the government purchases multiplier and the net tax multiplier. If the MPC falls, what happens to the tax multiplier?
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)
Suppose that the government expenditure multiplier is equal to 6. By how much should the government decrease government expenditures (G) in order to close this inflationary gap?
Government expenditures represents one of the injections of expenditure. Explain how an increase in government spending may have a multiplier effect in the economy.
If in a economy, the marginal tax rate = 0.1, the marginal propensity to save = 0.25, and the marginalpropensity to inport = 0.005, what is the value of the multiplier? A 1.43, B 1.54, C. 1.67, D 2.0, and E2.5
Suppose an initial increase in government spending (G) increased GDP by $50,000. If he simple spending multiplier is 2.5, the size of the initial government spending was
Consider a closed economy with fixed prices and wages. Suppose consumption function takes the form C = 150+0,8Yd, Investments are I = 200, government purchases are G = 350, tax rate t= 0,1. There are no lump-sum taxes. (some calculations are added in the images) 1)Compute the government spending multiplier before and after changes in tax rate. Explain why multiplier is changed? 2) If the potential output is 3000 and economy is in initial equilibrium (a) what changes in government purchases the Government need to implement in order to achieve potential output? Show how changes in government purchases affect the planned aggregate spending line and new equilibrium output.
1. If the MPC is .75, the government spending multiplier is Group of answer choices 2.5. 3 1.75 4 2. If the government spending multiplier is 4 and government purchases increase by $200 billion, output will increase by Group of answer choices $200 billion. $1,600 billion. $800 billion. $500 billion.
Suppose there is some hypothetical closed economy in which households spend $0.65 of each additional dollar they earn and save the remaining $0.35. The marginal propensity to consume (MPC) for this economy is 0.65 , and the spending multiplier for this economy is 2.8571 . Suppose the government in this economy decides to increase government purchases by $350 billion. The increase in government spending will lead to an increase in income, creating an initial change in consumption equal to (blank). This increases income yet again, leading to a second chance in consumption equal to (blank) . The total change in demand resulting from the initial change in government spending is (blank) .

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If the government purchases multiplier equals 2, and real GDP is $14 trillion with potential GDP $14.5 trillion, then government purchases would need to increase by to restore the economy to potential GDP. A) $7.25 trillion B) $1 trillion C) $500 billion D) $250 billion E) None of the above.