MPC = 0.75. Calculate the spending multiplier and the tax multiplier Spending multiplier = 2.5. Calculate the MPC and the tax multiplier Tax multiplier = 4.0. Calculate the MPC and the spending multiplier

Q: When the MPC increases: a. the government spending multiplier stays the same b. the government…

A: The marginal propensity to consume refers to that portion of the increased income that was spent by…

Q: Explain the difference between a closed economy fiscal multiplier and an open economy fiscal…

A: Difference between a closed economy fiscal multiplier and an open economy fiscal multiplier:…

Q: The effect of an increase in personal tax rates is to: decrease the dollar amounts of consumption…

A: Spending multiplier is the factor by which equilibrium income changes due to change in initial…

Q: The change in aggregate demand that results from fiscal expansion changing the interest rate is…

A: Crowding out Effect states that government spending is increased in order to balance the reduction…

Q: What is true about the balanced budget​ multiplier?   A. The balanced budget multiplier is positive…

A: The balanced budget multiplier is the budget situation where the spending of the government and the…

Q: If the tax multiplier is -5 and taxes are reduced by $200 billion, output falls by $1000 billion.…

A: Given Tax multiplier = -5 Reduction in Taxes = 200 Billion$ with reduction in taxes there is…

Q: Define the Tax Multiplier and the Balanced Budget Multiplier.

A: The multiplier measures the amount by which equilibrium level of income changes when the autonomous…

Q: In each of the following cases, calculate the spending multiplier and determine the size and shift…

A: As requested, answering (c) and (d) (c) Multiplier = 1/ MPW  = 1/ 0.35 = 2.857   AD decreases by =…

Q: Suppose that the MPS = 0.2 and the government is interested in raising the level of output in the…

A: Hi, thank you for the question. As per our Honor code, we are allowed to attempt only first three…

Q: If an economy is experiencing an contractionary gap of 260 billion and the expenditure multiplier is…

A: A contractionary gap or recessionary gap alludes to the contrast among potential and actual…

Q: Why is the tax multiplier smaller than the government spending multiplier?

A: Spending & taxation are the two main instruments of fiscal policy. The government can either…

Q: Suppose the tax multiplier in an economy is -3. How will total spending (TS) change when taxes (T)…

A: Since tax multiplier is -3, it means that if T decreases by $1, TS increases by $3. So, When T…

Q: An economy has a fixed price level, no imports and no income taxes.  MPC is 0.75 and real GDP is…

A: Given MPC= 0.75 Real GDP Y =$190 billion  Government expenditure is increased by $5 billion. Price…

Q: Using the fiscal multiplier explain why, in Krugman’s opinion, fiscal austerity in France (and more…

A: Fiscal Austerity ; Under this government reduces the spending and increase taxation in order to…

Q: Explain the difference between the government purchases multiplier and the net tax multiplier. If…

A: Investment multiplier refers to the number of time income increases due to increase in the…

Q: Assume the simple spending multiplier equals 10.  Determine the size and direction of any changes of…

A: 1. If spending rises by $8 billion at each spending levelA real GDP rises by $80 billion (8*10)This…

Q: Differentiate the macroeconomic effects, multiplier and crowding effect, that explain the causes of…

A: The aggregate demand measures the total amount of a good or service that all the buyers in a market…

Q: If the tax multiplier is -4 and taxes are reduced by $35 billion, output falls by $140 billion.…

A: The data presented in the question above is:- Tax multiplier = -4  Reduction in taxes = $35 billion…

Q: If the marginal propensity to consume is 0.9, then the tax multiplier will be: Group of answer…

A: Here, it is given that the marginal propensity consume of an economy is 0.9 due to which a change in…

Q: The marginal propensity to save is 0.2 and the proportional rate of tax is 0.4. The multiplier of…

A: The sum of marginal propensity to consume and marginal propensity to save is 1.

Q: Assuming T = 0, for the following three consumption functions, i) identify the mpc and mps, iii) tax…

A: Marginal propensity to consume (MPC): - it is a fraction of the change in disposable income that is…

Q: Since March 2020 (after the breakdown of Covid19) it is observed that people started to save more…

A: Given; Initial marginal propensity to save; MPS= 0.30 New Marginal propensity to save; MPS= 0.45…

Q: government spending multipliers are larger than tax multipliers and politicians can direct…

A: First we have to look at the equation for the Simple-Keynesian-Model. Y=C(Y-T)+I+G Where-Y is the…

Q: What happens to the real GDP if the government increases spending by $50 million and the government…

A: The government multiplier = 1.5 Government spending = $50 million

Q: DERIVE the balance budget multiplier

A: When the change in government expenditure is equal to the change in taxes, then the budget is said…

Q: Explain how MPC and the multiplier effect would impact a government’s attempt to stimulate its…

A: The government in the fiscal policy either increase government purchases spending or decreases the…

Q: Take into account the economy in which the current income level is $ 600 billion, the government…

A: To increase income, government spending has to increase. Increase in government spending = required…

Q: In the 2009 stimulus package, Congress included tax cuts as well as changes in government spending.…

A: Several tax increases were debated as part of the debate about economic stimulus in the aftermath of…

Q: If an economy is experiencing an contractionary gap of 260 billion and the expenditure multiplier is…

A: Contractionary gap or recessionary gap refers to the situation where the level of output is less…

Q: Use the following information on economy X to answer the questions below.  Consumption function: C…

A: Given: Consumption function (C) = 350 + 0.6Y Investment spending (I) = 250 Government spending (G) =…

Q: Imagine the government wants to conduct an expansionary fiscal policy and needs an expert to answer…

A: Marginal propensity to consume shows how consumption changes as income changes. It is the ratio of…

Q: The recent economic recession was brought about by the Covid-19 pandemic. The pandemic brought along…

A: The recent economic recession which was brought about by the Covid-19 pandemic has been responsible…

Q: Suppose the MPC is 0.8. What is the tax multiplier in this economy? If the government were to lower…

A: Tax multiplier = - MPC / (1 - MPC)  = - 0.8 / (1 - 0.8) = - 0.8 / 0.2 = - 4

Q: Government expenditures represents one of the injections of expenditure. Explain how an increase in…

A: In the circular flow of economy, leakages reduce the flow of income in the economy and injections…

Q: If the MPS in an economy is 0.2. What is the tax multiplier? Group of answer choices a. 4 b. 5 c. -4…

A: Tax multiplier = - (1 - MPS) / MPS = - (1 - 0.2) / 0.2 = - 0.8 / 0.2 = - 4

Q: Calculate the fiscal multiplier if the marginal propensity to save is 0.2.

A: Marginal Propensity to Save = 0.2 Fiscal Multiplier = -MPCMPSor Fiscal multiplier = -MPC1 - MPC

Q: What will be the impact on the spending multiplier if the marginal propensity to save (MPS)…

A: Marginal propensity to save (MPS) is the ability to save the increased income instead of spending on…

Q: Explain carefully why the tax multiplier is negative and why it is smaller in absolute value than…

A: There exist an inverse relationship between taxes and the level of output or GDP. This is because a…