on basis of the following information. Assume that equilibrium real GDP is $800 billion, potential real GDP is $950 billion, the MPC is .80, and the MPI is .40. a) How much must taxes fall to eliminate the GDP gap? b) If government spending and taxes both change by the same amount, how much must they change to eliminate the recessionary gap? 2. Use the following equations for exercise C= $100 + .8Y I=$200 G= $250 X = $100 - .2Y a) What is the new equilibrium level of real GDP if government spending and taxes both increase by $150?

on basis of the following information. Assume that equilibrium real GDP is $800 billion, potential real GDP is $950 billion, the MPC is .80, and the MPI is .40. a) How much must taxes fall to eliminate the GDP gap? b) If government spending and taxes both change by the same amount, how much must they change to eliminate the recessionary gap? 2. Use the following equations for exercise C= $100 + .8Y I=$200 G= $250 X = $100 - .2Y a) What is the new equilibrium level of real GDP if government spending and taxes both increase by $150?

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section11.A: Graphical Treatment Of Taxes And Fiscal Policy

Problem 3TY

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Chapter 11 Answer exercises 11-14 on the basis of the following information. Assume that equilibrium real GDP is $ 800 billion, potential real GDP is $ 950 billion, the MPC is .80, and the MPI is .40. 11.What is the size of the GDP gap? 12.How much must government spending increase to eliminate the GDP gap? 13. How much taxes fall to eliminate the GDP gap? 14. If government spending and taxes both change by the same amount, how much must they change to eliminate the recessionary gap? 15. Suppose the MPC is .90 and the MPI is .10. If government expenditures go up $ 100 billion while taxes fall $ 10 billion, what happens to the equilibrium level of real GPD? Use the following equations for exercises 16-18 C = $ 100 + .8 Y I = $ 200 G = $ 250 X = $100 - .2 Y 16. What is the…
1. Suppose the MPC is .90 and the MPI is .10. if government expenditure goes up $100 billion while taxes fall $10 billion, what happen to the equilibrium level of real GDP? Use following equations for exercise 2-4 C= $100 + .8Y I=$200 G= $250 X = $100 - .2Y 2. What is the equilibrium level of real GDP? 3. What is the new equilibrium level of real GDP if government spending increases by $150? 4. What is the new equilibrium level of real GDP if government spending and taxes both increase by $150? 5. Make a graph showing the spending and tax revenue of your state government for as many years as you can find (use the government of your home country if you are not from the United States). What trends do you notice? What spending categories make up the largest share of the state budget? What are the largest sources of revenue?
1. If an economy has an MPC of 0.9 what is the multiplier? 2. If an economy has an MPS of 0.2 what is the multiplier? 3. If an economy has an MPC of .08 and the government needs to close a recessionary gap of 20 Billion dollars how much government spending should occur? 4. If an economy has an MPS of .05 and the government needs to close an inflationary gap of 10 Billion dollars how much should government spending decrease?
How do induced taxes and needs-tested spending change during a recession? What is the effect of induced taxes and needs-tested spending on the multiplier effects of changes in autonomous expenditure? Induced taxes _______ during a recession. Needs-tested spending _______ during a recession. A. decrease; increase B. increase; decrease C. increase; increase D. decrease; decrease Induced taxes and needs-tested spending _______ the multiplier effects of changes in autonomous expenditure. A. sometimes increase and sometimes decrease B. do not influence C. increase D. decrease
You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $500 billion, (2) investment = $50 billion, (3) government purchases = $100 billion, and (4) exports = $20 billion, imports = $40 billion. If the full-employment level of GDP for this economy is $700 billion. Marginal Propensity to Consume (MPC) of the economy is 0.5. How much government purchases would be closing the GDP-gap here? Explain your answer, and show your calculation.
Refer to the table on the next page in answering the questions that follow:a. If full employment in this economy is 130 million, will there be an inflationary expenditure gap or a recessionary expenditure gap? What will be the consequence of this gap? By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the inflationary expenditure gap or the recessionary expenditure gap? Explain. What is the multiplier in this example?b. Will there be an inflationary expenditure gap or a recessionary expenditure gap if the full-employment level of output is $500 billion? Explain the consequences. By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the gap? What is the multiplier in this example? c. Assuming that investment, net exports, and government expenditures do not change with changes in real GDP, what are the sizes of the MPC, the MPS, and the multiplier?
Consider an economy in which the marginal propensity to consume is 0.75, prices are constant, G is initially 1,500, taxes are autonomous (not related to income) and are initially 2,000, transfer payments are initially 500, and GDP is initially 8,200. The economy is currently experiencing an inflationary gap. The government wishes to eliminate the gap and intends to reduce GDP to 7,000, and is considering changing government purchases, or taxes, or transfer payments. What new levels of these fiscal policy tools would be needed? In each case, what would the new government surplus or deficit be?
1. In the Keynesian model, suppose that the economy has the following values : C = 100 + 0.75*Y G = 300 I = 200 NX = 0 (remember Y = GDP = C + I + G + NX) a) Solve for the level of equilibrium output in this economy. b) What is the MPC in this economy? What is the multiplier on government spending? (I want a specific number here, not a definition) c) Household savings is defined as income minus consumption (S = Y – C). What is the level of household savings in this economy? d) Suppose that households become nervous about the future of the economy and decide that they will consume less and save more money, so their new consumption function becomes C = 100 + 0.6*Y Solve for the new equilibrium level of output and calculate how much households end up saving. How has it changed from the level of savings in part c? e) How much does the government needs to increase its spending by to counteract the fall in economic output in this model?
Assume that equilibrium real GDP is $ 800 billion, potential real GDP is $ 950 billion, the MPC is .80, and the MPI is .40. aHow much taxes fall to eliminate the GDP gap? b.If government spending and taxes both change by the same amount, how much must they change to eliminate the recessionary gap?
Income is 678 Trillion and consumption is 662 Trillion then income increases to 698 Trillion and consumption increases to 677 Trillion. What will the marginal propensity to consume be? .8 Using the information and the calculations from question seven what will the multiplier be 4 Using the information and the calculations from questions seven and eight and given a full employment level of aggregate expenditure GDP of 600 and a current level of aggregate expenditure of 560 how much would government spending have to change to regain the full employment level of GDP Increase in government spending of 8 Decrease in government spending of 8 Increase in government spending of 10 Decrease in government spending of 10 None of the above Using the information and calculations form questions seven, eight, and nine how much would government taxes have to change by in order to regain the full employment level of GDP Increase taxes by 8 Lower taxes by 8 Increase taxes by…
Assume that, without taxes, the consumption schedule for an economy is as shown in the first two columns of the table below. Suppose that a lump-sum (regressive) tax of $10 billion is imposed at all levels of GDP. a. Calculate the tax rate at each level of GDP and enter the tax, disposable income, consumption, and tax rate in the table.Instructions: For the tax, disposable income, and consumption after tax, enter your answers as whole numbers. For the tax rate, round your answers to 2 decimal places.SEE PICTURE!!! b. Compare the MPC and the multiplier with those of the pretax consumption schedule. Instructions: For the MPC, round your answers to 1 decimal place. For the multiplier, enter your answers as whole numbers. SEE PICTURE!!!
Question #10 - Suppose the government wishes to eliminate an inflationary gap of $100 billion and the MPC is 0.50. How much must the government cut its spending? Instead of decreasing government spending by the amount you calculate, what would be the effect of the government increasing taxes by this amount?