I asked this question and was told to resubmit for the other 2 parts. Thank you 10. Agreements and disagreements among economists regarding fiscalpolicyConsider a hypothetical economy in which households spend $0.75 of each additional dollar of their after-tax income. The expenditure multiplier forthis economy isSuppose that this economy is experiencing a recession. The government would like to stimulate aggregate demand and is deciding whether it shouldincrease its spending by $1 billion or reduce income tax by $1 billion. Assume other things remain constant, and the marginal propensity to consumeremains at 0.75.Before any multiplier effect takes place, a $1 billion increase in government spending will increase the aggregate demand by$1 billion, while a$1 billion reduction in income tax will increase the aggregate demand by $0.75billion.Now consider the effect of each fiscal policy after the multiplier effect is complete. A $1 billion increase in government spending will result in a totalincrease of aggregate demand by$4.0 billion, whereas a $1 billion reduction in income tax will result in a total increase of aggregate demandby$3.0 billion.Keynesians believe that the multiplier effect of an increase in government spending will bethat of a tax cut of the same amount.True or False: A government spending increase can generally begin to impact the economy more rapidly than a tax cut.FalseTrue

Answer to the last two parts are given:

Keynesians believe that the multiplier effect of an increase in government spending will be that of a tax cut of the same amount. True or False: A government spending increase can generally begin to impact the economy more rapidly than a tax cut. False True

Keynesians believe that the multiplier effect of an increase in government spending will be that of a tax cut of the same amount. True or False: A government spending increase can generally begin to impact the economy more rapidly than a tax cut. False True

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 5P

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Question

I asked this question and was told to resubmit for the other 2 parts. Thank you

10. Agreements and disagreements among economists regarding fiscalpolicy
Consider a hypothetical economy in which households spend $0.75 of each additional dollar of their after-tax income. The expenditure multiplier for
this economy is
Suppose that this economy is experiencing a recession. The government would like to stimulate aggregate demand and is deciding whether it should
increase its spending by $1 billion or reduce income tax by $1 billion. Assume other things remain constant, and the marginal propensity to consume
remains at 0.75.
Before any multiplier effect takes place, a $1 billion increase in government spending will increase the aggregate demand by
$1 billion, while a
$1 billion reduction in income tax will increase the aggregate demand by $0.75
billion.
Now consider the effect of each fiscal policy after the multiplier effect is complete. A $1 billion increase in government spending will result in a total
increase of aggregate demand by
$4.0 billion, whereas a $1 billion reduction in income tax will result in a total increase of aggregate demand
by
$3.0 billion.
Keynesians believe that the multiplier effect of an increase in government spending will be
that of a tax cut of the same amount.
True or False: A government spending increase can generally begin to impact the economy more rapidly than a tax cut.
False
True

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