Refer to Figure 13-1. Ceteris paribus, a decrease in personal income taxes would be represented by a movement from AD1 to AD2. AD2 to AD1. O point B to point A. O point A to point B.
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- Exercise D24 Compare two policies: a tax cut on income or an increase in government spending on roads and bridges. What are both the short-term and long—term impacts of such policies on the economy?Under what general macroeconomic circumstances might a government use expansionary fiscal policy? When might it use contractionary fiscal policy?Economist Arthur Laffer famously pointed out that, in some cases, income tax revenue can actually go up when tax rates go down. Why might this be the case?
- Why is spending by the U.S. government on scientific research at NASA fiscal policy while spending by the University of Illinois is not fiscal policy? Why is a cut in the payroll tax fiscal policy whereas a cut in a state income tax is not fiscal policy?Given: C = 250 + 0.8 Y I = 150 G = 300 TR = 100 NX = 100 t =0.25 i) Find the equilibrium level of income. ii) Suppose, because of current COVID-19 situation C falls to 50, MPS falls to .05, I falls to 10, G falls to 100 and NX falls to 10. How much TR should the government increase to have the same level of equilibrium income as in part i)? iii) In determining the required change in TR in part ii), which multiplier did you use and why? (Hint: keep in mind the consumption tendency households may have under the COVID 19 situation in selecting the multiplier). iv) Draw a graph to show the appropriate changes between part i) and part ii). v) Give an example related to current Bangladeshi situation where the government may follow a 'Transfer Promoting Policy' instead of a 'Growth Promoting Policy' in determining who gets the transfer payment. vi) Instead of paying transfer (TR) if the government were to increase government spending (G), what type of crowding out would you expect? Briefly…Given: C = 250 + 0.8 Y I = 150G = 300TR = 100NX = 100t =0.25i) Find the equilibrium level of income.ii) Suppose, because of the current COVID 19 situation Ꞓ falls to 50, MPS falls to .05, I falls to 10, G falls to 100 and NX falls to 10. How much TR should the government increase to have the same level of equilibrium income as in part i)?iii) In determining the required change in TR in part ii), which multiplier did you use and why? (Hint: keep in mind the consumption tendency households may have under the COVID 19 situation in selecting the multiplier).iv) Draw a graph to show the appropriate changes between part i) and part ii).v) Give an example related to current Bangladeshi situation where the government may follow a 'Transfer Promoting Policy' instead of a 'Growth Promoting Policy' in determining who gets the transfer payment.vi) Instead of paying transfer (TR) if the government were to increase government spending (G), what type of crowding out would you expect? Briefly…
- C = 250 + 0.8 Y I = 150G = 300TR = 100NX = 100t =0.25i) Find the equilibrium level of income.ii) Suppose, because of the current COVID 19 situation Ꞓ falls to 50, MPS falls to .05, I falls to 10, G falls to 100 and NX falls to 10. How much TR should the government increase to have the same level of equilibrium income as in part i)?iii) In determining the required change in TR in part ii), which multiplier did you use and why? (Hint: keep in mind the consumption tendency households may have under the COVID 19 situation in selecting the multiplier).iv) Draw a graph to show the appropriate changes between part i) and part ii).v) Give an example related to current Bangladeshi situation where the government may follow a 'Transfer Promoting Policy' instead of a 'Growth Promoting Policy' in determining who gets the transfer payment.vi) Instead of paying transfer (TR) if the government were to increase government spending (G), what type of crowding out would you expect? Briefly…16. If consumers in a country spend 4/5 of their disposable income. If their governmentdecreases its spending by 55 trillion and in order to maintain a balanced budgetsimultaneously decreases taxes by 55 trillion. Calculate the effect of the 55 trillion change ingovernment spending and 55 trillion change in taxes on the country’s aggregate demand.Given thatG= 201= 35C = 0.9Ya + 70T= 0.2Y + 25Where, G, I, C, T and Ya are planned government expenditure and planned investment autonomous andconsumption expenditure and tax respectively.Calculate the equilibrium level of national income.
- Question2. Given: C = 250 + 0.8 Y I = 150G = 300TR = 100NX = 100t =0.25i) Find the equilibrium level of income.ii) Suppose, b 50, MPS falls to .05, I falls to10, G falls to 100 and NX falls to 10. How much TR should the government increase to havethe same level of equilibrium income as in part i)?iii) In determining the required change in TR in part ii), which multiplier did you use and why?(Hint: keep in mind the consumption tendency households may have under the COVID 19situation in selecting the multiplier).iv) Draw a graph to show the appropriate changes between part i) and part ii).v) Give an example related to current Bangladeshi situation where the government may follow a'Transfer Promoting Policy' instead of a 'Growth Promoting Policy' in determining who gets thetransfer payment.vi) Instead of paying transfer (TR) if the government were to increase government spending (G),what type of crowding out would you expect? Briefly explain.vii) As we have observed recently that, a lot…i) C = 1500 + mpc (Y – tY)ii) I = 800iii) G = 500iv) X – M = 500 – mpi (Y)where:t = the (flat) tax ratempc = the marginal propensity toconsumempi = the marginal propensity toimportsuppose mpc = .80, t = .25, mpi =.2a. solve for the equilibrium outputb. Solve for the (government)spending multiplier.c. When we discussed the multiplier we discussed the impact effect. For example, suppose that G increases by 100to 600 and we assume, as we often do, that firms match the increase in demandby increasing Y by 100. In round two,this is an increase in income of 100 to consumers. Trace out exactly where this100 increase in income goes in the second round and compare to our simpler treatmentwith a closed economy and lump sum taxes. Hint, there are three leakages toaddress(again, please be very specific as to where the 100 increase income‘goes’ in this second round).d. What would happen to the multiplier if the mpi rises to .25. Please explain the intuition.15. If consumers in a country spend 3/4 of their disposable income. If their governmentincreases its spending by 75 trillion and in order to maintain a balanced budgetsimultaneously increases taxes by 75 trillion. Calculate the effect of the 75 trillion change ingovernment spending and 75 trillion change in taxes on the country’s aggregate demand.
