Suppose the US Federal Government decides to increase its spending without issuing debt by raising additional taxes (i.e., tax-financed government spending). Create a graph that depicts the short-run and long-run effects of tax-financed government spending.

Suppose the US Federal Government decides to increase its spending without issuing debt by raising additional taxes (i.e., tax-financed government spending). Create a graph that depicts the short-run and long-run effects of tax-financed government spending.

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 17SQ

See similar textbooks

Related questions

Q: United States, the various state governments almost all have laws that require them to balance their…

A: Expansionary fiscal policy is utilized to launch the economy during a recession. It supports total…

Q: The following graph shows the aggregate demand curve. Shift the aggregate demand curve on the graph…

A: Aggregate demand is the total demand for the goods and services in the economy, and is equal to the…

Q: Most economists have reached the following conclusion about supply-side economics. a. Supply-side…

A: The answer is - c. Supply-side tax cuts are likely to widen income inequality.

Q: If the marginal propensity to consume is 0.2 and the government increases its spending by ¥1…

A: Marginal propensity to consume is 0.2 => MPC = 0.2 ----------------- Spending multiplier = 1 / (1…

Q: Assume the Philippines government adopted fiscal policy measures to reduce the severety of typhoon…

A: Typhoon Haiyan, also known as Super Typhoon Yolanda in the Philippines, was one of the most intense…

Q: For each of the separate scenarios, discuss the associated shortcoming of fiscal policy: After an…

A: In an economy, fiscal policy is the one that is developed and implemented by the government, but it…

Q: An economist who claims that an increase in government spending would result mainly in a higher…

A: An increase in government spending would result mainly in a higher price level.

Q: Suppose the economy has a recessionary gap. By using an expansionary fiscal policy, the Federal…

A: Government can able to control the fluctuation in an economy by using expansionary and…

Q: If the government tries to reduce the unemployment rate when the economy is not doing well and is in…

A: Fiscal policy refers to changes in government spending and taxes in order to influence the economy.…

Q: Suppose the tax multiplier in an economy is -3. How will total spending (TS) change when taxes (T)…

A: Since tax multiplier is -3, it means that if T decreases by $1, TS increases by $3. So, When T…

Q: f the current real GDP is P700 billion, which of the following policies would bring the economy to…

A: MPC = 0.8 => Government spending multiplier = 1 / (1-MPC) => Government spending multiplier =…

Q: Which of the following is true according to mainstream economics? If a balanced budget amendment to…

A: Many prominent economists do not believe that a balanced budget is necessary to address the US…

Q: An economist who favors smaller government would recommend: tax cuts during recession and…

A: Economists, such as classical, favor smaller government as they emphasize the role of the invisible…

Q: Suppose the US Federal Government decides to increase its spending without issuing debt by raising…

A: Economy is at the natural level if the GDP is at the potential level, inflation is at the expected…

Q: Refer to the above graph. Assume that the economy is in a recession with a price level of P2 and…

A: the aggregate demand is the total number of goods and services svgjslly form crowd out.

Q: Which of the following sentences correctly describes the budget of the Federal Government of the…

A: The budget deficit states that the government's expenditure surpasses the government's revenue. The…

Q: Suppose the economy has fallen into a severe recession. From a macroeconomic theory point of view…

A: Answer: c (increase government spending on goods and services) Explanation: A recession is a…

Q: What is meant by discretionary fiscal policy? Give an example of how the government can use fiscal…

A: Discretionary fiscal policy is a planned change in the level of taxes or government expenditure.…

Q: Pundits have stated that the recent tax cut mainly benefits companies. The benefit to companies can…

A: Lower tax rates increase the spending power of consumers and may increase aggregate demand,…

Q: Which of the following is NOT a fiscal policy action? Group of answer choices decreasing government…

A: The answer is - raising the quantity of money in circulation

Q: Suppose that a certain country has an MPC of 0.9 and an equilibrium real GDP of $500 billion. If…

A: The Investment Multiplier proposes that the expansion in the Investments will prompt the income…

Q: Which of the following is true according to mainstream economics? If a balanced budget amendment to…

A: Many prominent economists do not believe that a balanced budget is necessary to address the US…

Q: Fiscal Policy) Define fiscal policy. Determine whether each of the following, other factors held…

A: Fiscal policy may be a government measure to stabilize the economy, specifically by manipulating the…

Q: Fill in the blanks : During [A Recession / Periods of Inflation], Congress could [Raise / Cut] taxes…

A: The fiscal and monetary policies are used by the governments to achieve certain economic goals. They…

Q: Which legislative action shifted the budget power from the executive branch to the legislative…

A: In the United States, there are various acts implemented to manage the government budget because…

Q: Explain how MPC and the multiplier effect would impact a government’s attempt to stimulate its…

A: The government in the fiscal policy either increase government purchases spending or decreases the…

Q: (Fiscal Policy) Define fiscal policy. Determine whether each of the following, other factors held…

A: Answer- Fiscal Policy - This is a policy which a government adjusts its spending levels and tax…

Q: In 2009, the US Federal government cut taxes by approximately $300 billion, increased government…

A: GDP stands for a gross domestic product which is the monetary value of all final goods and services…

Q: Explain why increased government spending of, for example, $15 billion, will have a different impact…

A: The changes in tax and public expenditure are the major fiscal policy measures used by the…

Q: In order to boost the economy, the government should implement expansionary fiscal policy by…

A: Fiscal policy is the tool used by government to achieve the objectives of economy such as economic…

Q: In a closed economy, GDP is $1000, government purchases are $200, and consumption is $700. If the…

A: In Keynesian macroeconomics when the price level in the economy is assumed to be fixed then planned…

Q: The components of aggregate demand are: The components of aggregate demand are: A.…

A: Aggregate demand is the sum of consumption, investment, net government expenditure, and net export.

Q: Which of the following terms is used to describe the set of policies that relate to government…

A: Government taxes and spending influence economic circumstances, notably macroeconomic factors like…

Q: Refer to Figure 26-2. Which of the following events would shift the demand curve from D1 to D2?…

A: The curve that depicts that quantities of goods being demanded by consumers at various levels of…

Q: In the 2009 stimulus package, Congress included tax cuts as well as changes in government spending.…

A: Several tax increases were debated as part of the debate about economic stimulus in the aftermath of…

Q: Suppose the US Federal Government decides to increase its spending without issuing debt by raising…

A: if we connect to the situation via a standard IS-LM structure, the commodity market should look like…

Q: Shift the aggregate demand curve on the graph to show the impact of a tax hike. 130 Aggregate Demand…

Q: Which of the following is an example of active fiscal policy? Government expenditures rise during a…

A: When the president and congress willingly attempt to change the course of economy through changes in…

Q: Shift the aggregate demand curve on the graph to show the impact of a tax hike. 130 120 Aggregate…

Q: (Fiscal Policy) Chapter 11 shows that increased government purchases, with taxes held constant, can…

Q: Examine the following policies and determine which would decrease the level of aggregate demand.…

A: Answer to the question is as follows:

Q: Most economists have reached the following conclusion about supply-side economics. Supply-side…

A: Supply-side economics is an economic theory that postulates tax cuts for the wealthy result in…

Q: Now consider an economy in which the government lowers its spending. In the long run, the result…

A: An increase in government spending is an expansionary fiscal policy measure whereas a decrease in…

Q: Suppose that in 2012 the government collected $320 billion in revenue and spent $380 billion, while…

A: Additional deficit on 2012 =$320- $380= -$60 billion

Concept explainers

Laffer Curve Analysis

In terms of economics, the Laffer curve was popular among those economists who were or who belonged to the supply side of the economic peripheral. This concept was popularized by the famous supply-side economist known as Arthur Laffer. This curve illustrated the relationship between the tax rates and government revenue. It is already known that the tax which the public or individuals residing in an economy bear is the revenue or income of the government with the help of which the government does all the necessary works in the society, which is beneficial for the economy.

Question

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Step by step

Solved in 3 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Suppose the US Federal Government decides to increase its spending without issuing debt by raising additional taxes (i.e., tax-financed government spending). Which of the following statements describes how tax-financed government spending affects real GDP over the short run and the long run? Real GDP rises above the natural level in the short run, but it falls below the natural level in the long run. Real GDP remains at the natural level in both the short run and the long run. Real GDP falls below the natural level in the short run, but it rises above the natural level in the long run. Real GDP rises above the natural level in both the short run and the long run.
The following graph plots an aggregate demand curve. Using the graph, shift the aggregate demand curve to depict the impact that a tax hike has on the economy. Suppose the governments of two very similar economies, economy N and economy M, implement a tax cut of equal size. The tax cut in economy N is permanent, while the tax cut in economy M is temporary. The economies are otherwise completely identical. The tax cut will have a larger impact on aggregate demand in the economy with the (temporary tax cut/permanent tax cut) .
Suppose the US Federal Government decides to increase its spending without issuing debt by raising additional taxes (i.e., tax-financed government spending). Which of the following statements describes how tax-financed government spending affects the price level over the short run and the long run? The price level remains unchanged over the short run and the long run. The price level increases above it's initial level in short run and further increases over the long run. The price level decreases below it's initial level in the short run and further decreases over the long run. The price level decreases below its initial level in the short-run but increases above its initial level over the long run.
According to computer estimates using a traditional macroeconomic model, the Obama administration found that the multiplier for tax cuts and government expenditures were respectively a. 0.99 and 1.59 b. 1.59 and 0.99 c. 1.3 and 1.7 d. 1.7 and 1.3
The Laffer curve illustrates the concept that a.an increase in marginal tax rates will always cause tax revenues to decrease. b.when marginal tax rates are quite high, a decrease in the tax rate may cause tax revenues to increase. c.when marginal taxes are quite low, an increase in the tax rate will probably cause tax revenues to decline. d.an increase in marginal tax rates will always cause tax revenues to increase.
Changes in taxes The following graph plots an aggregate demand curve. Using the graph, shift the aggregate demand curve to depict the impact that a tax cut has on the economy. Suppose the governments of two very similar economies, economy B and economy A, implement a permanent tax cut of equal size. The marginal propensity to consume (MPC) in economy B is 0.7 and the MPC in economy A is 0.85. The economies are otherwise completely identical. The tax cut will have a larger impact on aggregate demand in the economy with the (SMALLER MPC or LARGER MPC).
In the 2009 stimulus package, Congress included tax cuts as well as changes in government spending. It makes sense that Congress included increases in government spending because changes in government spending have a larger multiplier than changes in taxes. Which statement gives the MOST likely reason for Congress to include tax cuts? Congress included tax cuts because - The decision lag is shorter than the lag in the effects of spending changes. - The information lag is shorter than the lag in the effects of spending changes. - The recognition lag is longer than the lag in the effects of spending changes. - The implementation lag is shorter than the lag in the effects of spending changes.
Economists at which of the following government offices help formulate spending plans and regulatory policies? Office of Management and Budget Congressional Budget Office Department of the Treasury The Federal Reserve
Explain how an increase in government spending (or, equivalently, a cut in taxes) is unlikely to lead to any increase in output neither in the short nor in the long run
In the United States, the various state governments almost all have laws that require them to balance their budgets, every single year. Such a law would require them to ___during a ____ , resulting in a ____ recession. recession ,boom ,bigger, smaller, decrease taxes, increase taxes
What effect an increase of government spending will have on the output equilibrium in the goods market? Explain using autonomous spending. please explain
What is the Laffer curve. Graphically show how to increase the tax revenue.