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Suppose that the U.S. government increases its expenditure on highways and bridges by $100 billion. Explain the effect that this expenditure would have on aggregate demand and real GDP.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section11.A: Graphical Treatment Of Taxes And Fiscal Policy

Problem 3TY

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1. Suppose that the U.S. government increases its expenditure on highways and bridges by $100 billion. Explain the effect that this expenditure would have on aggregate demand and real GDP.

Definition Video Definition Overall monetary value of all the complete or final services and goods that a country can produce within its domestic boundaries in a specific period. Video

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pls answer urgent all question Q1,a,b,c . Q1-Suppose the government reduces taxes by $20 billion, that there is no crowding out, and that the marginal propensity to consume is ¾. a. What is the initial effect of the tax reduction on aggregate demand? b. What additional effects follow this initial effect? What is the total effect of the tax cut on aggregate demand? c.How does the total effect of this $40billion tax cut compare to the total effect of a $40 billion in governmentpurchases? Why?
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5 Suppose that the MPC is 0.60 and there are no crowding-out effects. If government expenditures increase by $250 billion, then aggregate demand؟ a. shifts rightward by $62.5 billion. b. shifts rightward by $50.0 billion. c. shifts rightward by $32.5 billion. d. shifts rightward by $625 billion
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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.
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Question 1. Explain why the Aggregate Demand curve is downward sloping . 2. Explain why the Aggregate Supply curve is upward sloping . 3. What determines potential output Yf, and how can the economy exceed Yf in the short run? 4. Explain the Equilibrium condition of Aggregate Expenditure= output Y. How are inventory changes related to AE and Y? 5. Define the multiplier and the marginal propensities to consume (MPC) and save (MPS). What is the relationship between the MPC and the multiplier? 6. Compare and contrast the short run Keynesian and long run Neoclassical views of the aggregate supply and Phillips curves 7. For each the following economies, calculate equilibrium Y*, the multiplier, and the size of the recessionary or inflationary gap, if any. a. AE= 250 +.75 Y Yf= 1200 b. AE= 400+ .9 Y Yf= 3000 c. AE= 300 +. 8Y Yf=1500 d. AE= 300+ .67 Y Yf=1000