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- Explain the difference between the government purchases multiplier and the net tax multiplier. If the MPC falls, what happens to the tax multiplier?A. If your MPC = 0.6 and government spending (G) increases by $800. What will happen to the equilibrium income? The Effect of Taxation: Tax Multiplier = -MPC X Spending Multiplier Problems: B. If the MPC = 0.8 and taxes go up by $1000, what will happen to the equilibrium income? Please fully complete both problems.Consider the following consumption function: C (Y)=0.8(Y-T) where Y represents income and T represents net taxes. Suppose that investment, I, is 100; government spending, G, is 200; and, net taxes, T, are 100. 1)The equilibrium level of output is: a. 1200 b. 900 c. 1100 d. 1000 Tha values for the government expenditure and tax multipliers are, respectively: a. 5 and -4 b. -2 and 2 c. 2 and 2 d. 2 and 4
- Suppose that real GDP is currently $17.1 trillion, potential GDP is $17.4 trillion, and the tax multiplier is -1.6. Byhow much will taxes have to change to bring the economy to equilibrium at potential GDP?What is marginal propensity to consume and marginal tax rate? Why is the gov expenditure multiplier is 4.8?Suppose the government wishes to eliminate an inflationary gap of $100 billion and the MPC is 0.5. how much must the government cut its spending? b) what would be the effect of the government increasing taxes by this amount?
- suppose the government wishes to illuminate recess or a gap of 100 billion in the MPC is .075 how much must’ve government increase in spending instead of increasing government spending by the amount you calculated what would be the effect of the government decreasing taxes by this amount explain?Suppose the government uses a balanced-budget policy, Önancing its expenditure bylump-sum taxes (i.e., G = T) Suppose the government wants to achieve the same output level as in the no-taxcase in 1 (b) above. (output level = 3800)i. Does it have to increase or decrease its expenditure (G) and taxes (T) with G = T , and by how much?ii. What is the value of the balanced-budget multiplier?iii. In the no-tax case in 1 (b); the G-policy can eliminate any trade imbalance(i.e., make NX = 0). Would the government be able to achieve exact tradebalance as well under the balanced-budget policy here? If not, would therebe a trade surplus or trade deficit, and how big is the surplus/deficitSuppose MPC is 0.8. If government purchases increases by $10ce and cuts taxes by $50B, how much the equilibrium output is changed?Suppose MPC is 0.8. If government purchases increases by $10ce and cuts taxes by $50B, how much the equilibrium output is changed? a 5 b 12
- 1. Consider an economy with the initial equilibrium income level of $1000 and the consumption function of C = $150 + 0.6 (Y - T). Find the following quantities:a. Government expenditures at the equilibrium level of income if T = $160 and I = $100.b. The change in income produced by increasing taxes 10%, provided that G and I remain unchanged. What is the tax multiplier?c. The change in income produced by increasing government expenditures 10%, provided that T and I remain unchanged. What is the government spending multiplier?d. Based on your answers to (b) and (c), does the balanced budget multiplier theorem hold?Consider the following model 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 =.2 a. 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 100 to 600 and we assume, as we often do, that firms match the increase in demand by increasing Y by 100. In round two, this is an increase in income of 100 to consumers. Trace out exactly where this 100 increase in income goes in the second round and compare to our simpler treatment with a closed economy and lump sum taxes. Hint, there are three leakages to address(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.In an economy where the MPC is 0.7, the proportional tax rate is 0.25 and the marginal propensity to import is 0.2, the multiplier will be:Select one:a.0.675b.1.48c.2.35d.2.1
