Question 13 Which of the following is an effect of an increase in government spending in the medium run Decrease in interest rates. Decrease in savings. Increase in private consumption. Decrease in private investment.
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- Assume that initial GDP is $1,000 and we want to expand it to $1,600. Average MPC for the country is 2/3. What should be the new level of government spending if the initial level is $100. Also how much of a tax policy change reach to the same results?If the MPC is 0.8 and government spending decreases by $50 million, then equilibrium GDP will decrease by: A) $250 million. B) $40 million. C) $50 million. D) $200 million.In the equation AE = $2,000 + 0.8Y, autonomous expenditures are equal to 80 percent of income. [True or False] and EXplain WHY
- Suppose the consumption function is given by C(Y)=60+0.8(Y-T) where Y represents output and T stands for net taxes. Suppose further that the level of investment, I, is 400, the level of government expenditure, G, is 300, and net taxes, T, are 200. What is the equilibrium level of output in this economy? a. 1720 b. 3000 c. 1590 d. 720Autonomous consumption = R100m Investment spending = R300m Government spending = R200 million Exports = R150 millionAutonomous imports = R100 million Marginal propensity to consume =2/3 Tax rate = 1/10Marginal propensity to import = 1/10 Yf = R2 150 million. Calculate the change in government spending required to reach full employment in the economy.Assume that the Equilibrium GDP is $4,000 billion. The Potential GDP is $5,000 billion. The marginal propensity to consume is 4/5 (0.8). By how much and in what direction should government purchases be changed? a. increase by $1,000 billion. c. increase by $100 billion. b. decrease by $1,000 billion. d. increase by $200 billion.
- Assume a closed economy in which, there is no government. If ouput (income) is 800,autonomous consumption is 100, and marginal propensity to consume is 0.70 in this economy.Then calculate the the amount of consumption spending?Determine the net impact upon the nation's economy that results from equal increases in government spending and taxes of $10 billion when the MPC is .8. Show your work.Assume that, without taxes, the consumption schedule for an economy is shown below: GDP, Billions Consumption, Billions $100 $120 200 200 300 280 400 360 500 440 600 520 700 600 Graph this consumption schedule and determine the size of the MPC. Assume that a lump-sum (regressive) tax of $10 billion is imposed at all levels of GDP. Calculate the tax rate at each level of GDP. Graph the resulting consumption schedule and compare the MPC and the multiplier with those of the pretax consumption schedule. Now suppose a proportional tax with a 10 percent tax rate is imposed instead of the regressive tax. Calculate and graph the new consumption schedule and note the MPC and the multiplier. Finally, impose a progressive tax such that the tax rate is 0 percent when GDP is $100, 5 percent at $200. 10 percent at $300, 15 percent at $400, and so forth. Determine and graph the new consumption schedule, noting the effect of this tax system…
- If the MPC in an economy is 0.90, a $4 billion increase in government spending will ultimately increase real GDP byIf income level of the economy is at 50, how big an increase in autonomous expenditures is necessary to move the economy to equilibrium? a) 20 b) 50 c) 75 d) 100 e) None of the abovea. Suppose that in an economy with no government, the aggregate expenditurefunction is: AE = 50+0.75Y with an investment level of 100.i. Determine the level of planned expenditure when income is 150.ii. Draw a diagram showing the aggregate expenditure functioniii. What are the levels of autonomous consumption and inducedconsumption at income levels of 150 and 200.b. An open economy with a government sector is in equilibrium. Assume thefollowing:1. Marginal propensity to save = 0.42. Marginal propensity to tax = 0.23. Marginal propensity to import = 0.2i. Solve for the value the government multiplier ii. Determine by how much the equilibrium level of national incomewould fall, if injections in the economy are reduced by Ks.60m.iii. Determine the new level of income if taxes increased by KS. 20c. Propose four reasons why economists should not consider GDP an effectivemeasure of the standard of living in a country.