PRICE LEVEL 170 350 100 8 90 B 30 20 OUTPUT Aggregate Demand 40 50 Aggregate Demand Suppose the govemments of two very similar economies, economy N and economy M, implement a permanent tax cut of equal size. Investment spending in economy N is less sensitive to changes in the interest rate than investment spending in economy M. The economies are otherwise completely identical. The tax cut will have a smaller impact on aggregate demand in the economy with the

PRICE LEVEL 170 350 100 8 90 B 30 20 OUTPUT Aggregate Demand 40 50 Aggregate Demand Suppose the govemments of two very similar economies, economy N and economy M, implement a permanent tax cut of equal size. Investment spending in economy N is less sensitive to changes in the interest rate than investment spending in economy M. The economies are otherwise completely identical. The tax cut will have a smaller impact on aggregate demand in the economy with the

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter12: Fiscal Policy, Incentives, And Secondary Effects

Section: Chapter Questions

Problem 4CQ

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What is a potential problem with a temporary tax increase designed to increase aggregate demand it people know that it is temporary?
Determine how each of the following monetary or fiscal policy would shift the aggregate demand curve. Illustrate and explain the following effect. a. Assuming the economy is currently producing above the full employment output, the government decided to increase the personal income tax as a form of contractionary fiscal policy. Illustrate and explain the effect of the policy using AD-AS curve. b. With the recession due to COVID-19, the central bank has decided to lower down discount rates and reserve requirements of the commercial bank. Illustrate and explain the effect of the policy using AD-AS curve.
Based on the below information, help Renwick economy find the equilibrium level of output. Aggregate Demand Aggregate Supply Equilibrium YAD = C + I + G YAS = A Kα L1-α YR =0.5YAD+ 0.5YAS C = 600 + βYD A = (1 + g) Ao YD = YR + TR - tYR K = 35 TR = 55 L = 80 G = 120 g = 6% I = 50 Ao = 150 t = 0.15 α = 0.65 Where C is private consumption, YD is disposable income; TR, G and I are transfer payments, government spending and total investment, respectively. A in the index of technology and K and L are capital and labour inputs. A0 is the initial levels of A and L, both assumed to be 150, while g is the growth rates. The MPC is 0.60. a.) Find aggregate demand…
Suppose that a local economy has the following values for Desired C, I, G, and NX at a price levelof 100 given by: C = 6,000 + 0.9(1 − t)YI = 3,100G = 900NX = 2,000 − 0.06YThe tax rate (t) is equal to 10%. For every $1 increase in the price level, AutonomousConsumption (C) and Autonomous Investment (I) each decrease by $1.It also has an aggregate supply (AS) given by: AS = 2p10. What is the Short-Run Real GDP in this economy? Show your work. 11. Is this economy running a primary budget surplus or a primary budget deficit? How largeis it (in dollars)? Show your work. Suppose also that this government has an outstanding debt of $10,000, owed with an interestrate of 1%.12. Is this economy running a total budget surplus or a total budget deficit? How large is it(in dollars)? What is this country’s debt-to-GDP ratio? Show your work. Suppose that the above questions (Q10 – Q11) is only for the year 2010. Assume thateverything is the same (Ceteris Paribus) in 2011 and 2012 as it was in…
Consider a closed economy. The profits of private corporations constitute a fraction ?of national income. These profits are subject to corporate tax and a fraction ? of the net profits is distributed to owners. The remaining profits are invested in theeconomy. To encourage investment, the government proposes to cut the corporation tax. The corporation tax is proportional and so is the regular tax but the rates are notnecessarily the same.Analyse the effects of the government proposal assuming that wages and pricesare flexible. Will there be any ambiguity about the results?
Directions: Read the following excerpts. Identify whether the policy action is fiscal or monetary and expansionary or contractionary. Draw and label the change that would occur on the ADAS graph as a result of the policy action described in each. Identify what will happen as a result of the policy to the price level, employment, and real GDP. Excerpt from Public Law 110-85 of the 110th Congress: Signed into law by President George W. Bush February 13, 2008 “To provide economic stimulus through recovery rebates to individuals, incentives for business investment, and an increase in conforming and FHA loan limits. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled. Title I – Recovery Rebates and Incentives for Business Investment … Sec. 101. 2008 recovery rebates for individuals. Sec. 102. Temporary increase in limitations on expensing of certain depreciable business assets Sec. 103. Special allowance for certain property…
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Question 4. Due to COVID-19 Pandemic, the economy of Finland is in a recession. The government is planning to increase government spending by 30 billion euros. Assume that marginal propensity to consume is 0.75 and there is no crowding-out effect. Define this policy measure and its consequences. Quantify the total effect of an increase in government spending on aggregate demand. Compare if the tax cut of 30 billion euros would lead to the same result. Discuss how can the crowding-out effect change the consequences of an increase in government spending.
consider each fiscal policy listed here, which policies would shift the aggregate demand curve in the way that restores full employment output at the lowest possible price level check all that apply. Cut taxes by 60 billion. Decrease taxes by 80 billion and decrease government expenditures by 20 billion Increase government expenditures by 50 billion and raise taxes five40 billio Increase government expenditures by 60 billion and raise taxes by 60 Reduce government expenditures by 30 billion
Directions: Read the following excerpts. Identify whether the policy action is fiscal or monetary and expansionary or contractionary. Draw and label the change that would occur on the ADAS graph as a result of the policy action described in each. Identify what will happen as a result of the policy to the price level, employment, and real GDP. Excerpt from Public Law 111-5 of the 111th Congress: Signed into law by President Obama February 17, 2009 “Making supplemental appropriations for job preservation and creation, infrastructure investment, energy efficiency and science, assistance to the unemployed, and State and local fiscal stabilization. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled. TITLE XII—Transportation, Housing and Urban Development, and Related Agencies …projects eligible for funding provided under this heading shall include, but not be limited to, highway or bridge projects eligible under title 23, United…
Compare the impact of a recession that reduces consumer income by 10 percent on the consumption of durable goods and house rentals. Suppose that the income elasticity of demand for durable goods is 1.5 and the income elasticity of demand for house rentals is 0.3. Based on your response, make a policy argument to support through government funding either businesses or house rentals.
i need in words .(not handwritten) Q4: Due to COVID-19 Pandemic, the economy of Finland is in a recession. The government is planning to increase government spending by 30 billion euros. Assume that marginal propensity to consume is 0.75 and there is no crowding-out effect. Define this policy measure and its consequences. Quantify the total effect of an increase in government spending on aggregate demand. Compare if the tax cut of 30 billion euros would lead to the same result. Discuss how can the crowding-out effect change the consequences of an increase in government spending.