Figure 34-11PLRASSRASAP.AD$1000$1200Refer to Figure 34-11. Suppose the multiplier5 and the economy is currently at point A. To stabilize output at $1000, the government shouldpurchases by $

Here, it is given that the economy is currently producing at point A and the potential output level…

Answered: LRAS SRAS P. AD $1000 $1200 Refer to…

LRAS SRAS P. AD $1000 $1200 Refer to Figure 34-11. Suppose the multiplier is 5 and the economy is currently at point A. To stabilize output at $1000, the government should purchases by $_

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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2. Assume MPC = 0.9. Government increased its spending by 100. 2.a. How much would this increase the GDP immediately?(here, no consideration of the multiplier effect nor the crowding-out effect) Considering the multiplier effect but not the crowding output effect, how much would be the eventual increase in GDP through the multiplier effect?2.b. How the changes in 2.a. affect the money demand: Decrease, Increase, or No change? How would the equilibrium interest rate change: Decrease, Increase, or No change? 2.c. Now, consider the crowding-out effect. How would the crowding-out effect change the immediate increase in 2.a.: Decrease, Increase or No change? How would the crowding-out effect change the eventual increase in GDP in 2.a.: Decease, Increase, or No change?
1. If NX=0, then savings must be equal to invesment Select one: True False 2. When the government runs a fiscal deficit, it finances it by: a. issuing stocks b. decreasing taxes c. borrowing money from a commercial bank d. issuing bonds 3. If taxes increase, then: a. disposable income decreases b. disposable income increases c. consumption increases d. private savings increase 4. Primary fiscal surplus refers to: a. private savings b. total savings c. public savings d. trade balance 5. Calculate Private Savings using the proper information below: Private Consumption=€12,000 Public Spending=€5,000 Taxes= €7,000 GDP=€30,000 Investment=€13,000 6. When the interest rate falls: a. the cost of borrowing money increases b. investment decreases c. investment increases d. savings increase 7. When the government runs a fiscal deficit and as a result private investment falls, this is called: 8. An economy has the following…
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.
Assume an economy in which:(i) there are no exports and no imports,(ii) investors always want to spend $200 billion, or I = 200,(iii) government spends $500 billion and tax revenue is $200 billion,(iv) consumption is a linear function of disposable income, C=100+0.8YdAnswer the following questions:a. What is the marginal propensity to save (MPS)?b. What is the saving equation?c. What is the equilibrium level of national output/income (Y)?d. At the equilibrium income level (Y*, your answer to c) calculate private saving,and explain the relationship between private saving and planned investment?
if a $200 billion increase in invest spending creats $200 billion new income in the first round of the multiplier process and $120 billion in second round, the MPS in the economy is A. 0.4 B. 0.6 C. 0.2 D. 0.3
4. A country’s consumer spending is defined by the following equation:Consumer spending = 365 + 0.75 (Disposable Income)a. Draw a diagram to represent this equation. b. Assuming no government, what will the Marginal Propensity to Save (MPS) in this country.c. What will be Consumer spending if disposable income in this country is 1000? d. If suddenly this country’s wealth increases, how do you think the equation might change.Also show it in a diagram.
I need help with question 4, especially with the graph. Please give a step-by-step on how to create the graph and the coordinates. I also need help with question 5. Suppose that the equation for autonomous planned spending, Ap , is Ap = 6,200 – 200r and the value of the multiplier, k, is 2.5. Derive the equation for the IS curve, Y = kAp . Graph the IS curve for interest rates between 0 and 8, with intervals of one-half of a percentage point. Suppose the equation for the LM curve is Y = 13,500 + 100r. Use this equation to explain the level of income at which there is a zero lower bound on the federal funds rate, the interest rate that the Fed controls. Graph the LM curve for interest rates between 0 and 8, with intervals of one-half of a percentage point. Suppose that the term premium is 1.0 percentage point and the risk premium is 2.0 percentage points. With Figure 5-11 as a guide, use the LM curve with the zero lower bound and the term premium and risk premium to graph the…
(a) Suppose in a simple Keynesian economy, planned consumption function is given by C=250+0.65(Y-T). Planned investment, government purchases, taxes are $100 million, $100 million and $150 million respectively. What is MPC, MPS and autonomous consumption Derive the saving function. What is the equilibrium level of income? Y= AD=C+I+G If government purchases increase to $150 million, what is the new equilibrium level of income? What level of government purchases is needed to achieve an income of $2000 million? From question e) you get the newly government purchase. Now find out the multiplier value What is the amount of shift in AD curve? [Use the multiplier value from e)] (b) In a self-regulating economy “X”, labor supply is 40 million but labor demand is 10 million. What will happen in goods and service market simultaneously? Explain this situation with relevant graph. Based on your findings in a) is it denoting long run equilibrium? If not, will the economy be able to restore…
Only typed answer a. If GDP is $800 and government spending is G1, the size of Motak's budget deficit is $ billion. b. If government spending is decreased by the size of the deficit in part (a), draw the new curve labelled G2 in the graphing area above. c. Suppose the multiplier has a value of 3, the new level of equilibrium GDP is $ billion. d. Motak's deficit at this new level of equilibrium GDP is $ billion.
11. Assuming a Marginal Propensity to Save (MPS) of 20% or 0.20, use the Keynesian Multiplier to determine the additional amount of government spending required.
a) What are the three fiscal policy tools and how would each be used to counter a contractionary gap? b) True or False and explain: Fiscal Policy is effective at reducing the duration of an economic contraction. c) If the spending multiplier is 2.5 and the economy is in a $500 billion contractionary gap, how much should I increase government purchases to eliminate the gap? d) Continuing with c, if the MPC is 0.8, how much would I need to increase transfer payments to eliminate the $500 billion contractionary gap? e) True or False and explain: Households always react to tax changes in a predictable manner. Module 6: Deficits and the Debt. a) Distinguish between deficit and debt. b) Explain what crowding out is and why it reduces the impact of fiscal stimulus. c) True or false and explain: The national debt represents a threat of bankruptcy. (For d and e) Suppose the interest on the debt was $600 billion. If interest is paid domestically, 90% will be spent domestically (the remainder is…
Assume certain coutory economy consumption function =200+0.75(Y-T) given government purchase and Tax are 100 and investment function =100-25r real money demand =25y-100r money supply =1000 then find equilibrium income and interest rate when government purpose increase by 80 percent and tax increase by 70 percent draw IS and LM curve and by how much they shift ?