Answered: Refer to the News Wire to answer three…

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter18: Debates In Macroeconomics Over The Role And Effects Of Government

Section18.10: Demand-side And Supply Side Views Of The Economy And Government Tools For The Changing Real Gdp

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Refer to the News Wire to answer three questions.

NEWS WIRE: FISCAL STIMULUS: TAX CUTS

Trump Tax Cuts Boost Spending

The Tax Cuts and Jobs Act of 2017 seems to be working. Although the lion's share of President Trump's tax cuts went to business, consumers got a tax break as well. For the average U.S. household, the tax cut amounts to roughly $40 a week in take-home pay. That may not sound like much, but with 130 million households, that extra income can pack some punch. According to the National Retail Federation, consumer spending was up 4.8 percent in the first six months of this year. And the government reports that GDP grew by 4.2 percent in the second quarter, the best performance since 2014. There may be other factors at work here, but tax-cut fueled consumer spending is certainly a big contributor.

Source: News accounts of September–October 2018.

Instructions: In part a, enter your response as a whole number. In parts b and c, round your responses to one decimal place.

How much did the weekly disposable income of the average household increase as a result of the Trump tax cut?
$ ____ per week
How much did the weekly disposable income of all households increase?
$ ____ billion per week
If the MPC was 0.55, by how much did total consumer spending increase
i. after a one-week boost to incomes?

$ ____ billion

ii. after all the spending cycles were completed after a one-week boost to incomes?

$ _____ billion

Expert Solution

Step 1

Disposable income is the money you have cast aside from your income after you pay taxes. It's computed using the following formula: disposable income = personal (income - current taxes).

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