(ii) Explain the difference between a closed economy fiscal multiplier and an open economy fiscal multiplier giving the appropriate equations. In both cases incorporate a government sector with an income tax rate given by t.

(ii) Explain the difference between a closed economy fiscal multiplier and an open economy fiscal multiplier giving the appropriate equations. In both cases incorporate a government sector with an income tax rate given by t.

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter17: Federal Deficits, Surpluses, And The National Debt

Section: Chapter Questions

Problem 6SQP

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3.1

(ii) Explain the difference between a closed economy fiscal multiplier and an open
economy fiscal multiplier giving the appropriate equations. In both cases incorporate a
government sector with an income tax rate given by t.

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Explain the difference between the government purchases multiplier and the net tax multiplier. If the MPC falls, what happens to the tax multiplier?
What is the main advantage of automatic stabilizers over discretionary fiscal policy?
Explain how automatic stabilizers work, both on the taxation side and on the spending side, first in a situation where the economy is producing less than potential GDP and then in a situation where the economy Is producing more than potential GDP.
Specify whether expansionary or contractionary fiscal policy would seem to be most appropriate in response to each of the situations below and sketch a diagram using aggregate demand and aggregate supply curves to illustrate your answer: A recession. A stock market collapse that hurts consumer and business confidence. Extremely rapid growth of exports. Rising inflation. A rise in the natural rate of unemployment. A rise in oil prices.
Explain the difference between a closed economy fiscal multiplier and an open economy fiscal multiplier giving the appropriate equations. In both cases incorporate a government sector with an income tax rate given by t.
Please check the solution to (a) and (b) of the following problem for accuracy and elaborate: Given MPC (marginal propensity to consume) = 0.75, if the government implements an expansionary fiscal policy as (a) cutting taxes by $10 billion, then by how much would total spending increase over an infinite period? (b) spending $10 billion, then by how much would total spending increase over an infinite period? MPC = 0.75 Tax multiplier = (-MPC / 1) = (-0.75 / 1 – 0.75) = (-0.75 / 0.25) = -3. (a) Cutting taxes by $10 billion. The total spending increase by (-3) (-$10 billion) = $30 billion. Spending multiplier = (1/1 – MPC) = (1 / 1 – 0.75) = 1 / 0.25 = 4 (b) Spending 1ncrease by 10 billion. The total spending increase by (4) ($10 billion) = $40 billion.
TRUE/FALSE Accordingto Ricardian Equivalence in a strict sense, the tax multiplier is zero.
TRUE/FALSE We argued that the tax multiplier is higher in absolute value than the government spending multiplier.