The federal government decides to stimulate the economy and increases government expenditure on new infrastructure projects by $100 billion. The marginal propensity to consume is MPC = 0.3 and the marginal propensity to import is MPI = 0.08. Assuming no crowding out effect, what is the increase in output caused by the stimulus package of$100 billion in a closed economy?

The federal government decides to stimulate the economy and increases government expenditure on new infrastructure projects by $100 billion. The marginal propensity to consume is MPC = 0.3 and the marginal propensity to import is MPI = 0.08. Assuming no crowding out effect, what is the increase in output caused by the stimulus package of$100 billion in a closed economy?

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 5SQP

See similar textbooks

Similar questions

The program has provoked a lot of political discussions. Which of the following statementsare correct (assuming a closed economy)? 1. The higher the marginal propensity to consume, the lower will be investment multiplier.2. A reduction of the tax rate lowers the fiscal policy multiplier.3. The higher the marginal propensity to consume, the more consumption can be induced bymore government spending, and this will lead to a higher fiscal policy multiplier.4. When fiscal policy is not able to compensate fully for other demand reductions, anexpansionary monetary policy can be helpful to overcome a recession more quickly.5. An expansionary monetary policy by the ECB in combination with a fiscal expansion willalways lead to inflation.6. Only a consequent fiscal consolidation will help the economy out of a recession.7. In the liquidity trap there is no crowding-out effect to be expected.8. It is best to conduct fiscal consolidation when the economy is in a boom.
The federal government decides to stimulate the economy and increases government expenditure on new infrastructure projects by $10 billion. The marginal propensity to consume is MPC = .80 and the marginal propensity to import is MPI = .25. Suppose the crowding-out effect is twice the amount of government spending. a. In a closed economy, what is the increase in output caused by the stimulus package of $10 billion? b. What is the increase in output if the economy is open?
Suppose a closed economy with no government spending which in equilibrium is producing an output and income of 2250. Suppose also that the marginal propensity to consume is 0.75, and that, if at full employment, the economy would produce an output and income of 3050 By how much would the government need to cut taxes (T) to bring the economy to full employment?
Consider an economy where the marginal propensity to save is 0.15; the marginal propensity to import is 0.05 and the marginal propensity to tax is 0.2. If there is an increase in government spending of $150 million, by how much would national income increase? (a) National income would increase by $350 million (b) National income would increase by $375 million (c) National income would increase by $210 million (d) National income would increase by $240 million
Assume an economy in which:(i) there are no exports and no imports,(ii) investors always want to spend $200 billion, or I = 200,(iii) government spends $500 billion and tax revenue is $200 billion,(iv) consumption is a linear function of disposable income, C=100+0.8YdAnswer the following questions:a. What is the marginal propensity to save (MPS)?b. What is the saving equation?c. What is the equilibrium level of national output/income (Y)?d. At the equilibrium income level (Y*, your answer to c) calculate private saving,and explain the relationship between private saving and planned investment?
An economy is operating with an output that is $400 billion dollars below its natural rate of $2000 billion dollars and fiscal policy makers want to close the recessionary gap. The central bank agrees to hold the interest rate constant so there is no crowding out. The marginal propensity to consume is 4/5. In which direction and by how much would the government spending need to change to close the gap? Fully explain your answer and provide a graph that shows the initial situation
Mexico's real GDP fell from 4.5 trillion pesos to 3.8 trillion pesos over the first part of 2020. In that same time, its consumer spending fell from 3.1 trillion pesos to 2.5 trillion pesos. Assume that real GDP represents disposable income. Using these values, what is the size of the tax cut multiplier? (Round answers to one decimal place.
3. You are given the following information about an economy: o Investment spending is 400 o Government spending is 600 o A trade deficit of 250 exists o Autonomous consumption is 300 o The mpc is 0.70 o A lump sum tax of 275 is imposed Given this information, please write the aggregate expenditures function.
1.Gomad is a small economy operating with output that is $40 million below its natural level. Assume there is no crowding-out effect and the price level is completely fixed in the short run, how much government spending does the fiscal policymakers need to change to close this recessionary gap if MPC is 0.8?
pls solve for C and D, please let it be correct In each of the following cases, calculate the spending multiplier and determine the size and shift of each fiscal policy on the AD (aggregate demand) curve. a. Government increases spending by $4 billion in an economy with a MPW of 0.7b. Government spending decreases by $2 billion in an economy with a MPC of 0.65.c. Government increases taxes by $3 billion in an economy with a MPW of 0.35d. A $5 billion tax cut causes an initial increase in spending of $1.5 billion.
Only typed answer and don't use chat gpt The government can use _____________ in the form of ____________________ to increase the level of aggregate demand in the economy. A.) expansionary fiscal policy; an increase in corporate taxes B.) contractionary fiscal policy; a reduction in taxes C.) contractionary fiscal policy; an increase in taxes D.) expansionary fiscal policy; an increase in government spending
i need in words .(not handwritten) Q4: Due to COVID-19 Pandemic, the economy of Finland is in a recession. The government is planning to increase government spending by 30 billion euros. Assume that marginal propensity to consume is 0.75 and there is no crowding-out effect. Define this policy measure and its consequences. Quantify the total effect of an increase in government spending on aggregate demand. Compare if the tax cut of 30 billion euros would lead to the same result. Discuss how can the crowding-out effect change the consequences of an increase in government spending.