E4 11.In the long run, if an economy's consumption spending is $5 trillion, its planned investmentis $2 trillion, government spending is $1 trillion, net tax revenue is $1 trillion, andhousehold savings are $2 trillion, total output should bea. O$7 trillionb. O$8 trillionc. O$11 trilliond. O$3 trillione. O$5 trillion12.The government budget deficit isa. Ois created by government injectionsb. Othe difference between government purchases and government revenues from bonds and taxesc. Ocaused by leakages in the economyd. Ocreated when the government expenditures exceed net taxese. Ocaused by a lack of business sector investment i13.What is the price of funds in the loanable funds market?a. OThe GDP price indexb. OThe interest ratec. OThe Consumer Price Index.d. OThe profit ratee. OThe real wage rate14.In the classical model, investment spending isa. Onegatively related to the interest rateb. Opositively related to the interest rate.c. Opositively related to the level of incomed. Ounrelated to the interest rate:e. Onegatively related to the price level

Budget deficit is the difference between income and expenditure of government.

the long run, if an economy's consumption spending is $5 trillion, its planned investment = $2 trillion, government spending is $1 trillion, net tax revenue is $1 trillion, and ousehold savings are $2 trillion, total output should be a. O$7 trillion b. O$8 trillion c. O$11 trillion d. O$3 trillion e. O$5 trillion

the long run, if an economy's consumption spending is $5 trillion, its planned investment = $2 trillion, government spending is $1 trillion, net tax revenue is $1 trillion, and ousehold savings are $2 trillion, total output should be a. O$7 trillion b. O$8 trillion c. O$11 trillion d. O$3 trillion e. O$5 trillion

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 1.4P

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Similar questions

Suppose the federal government gives taxpayers a tax cut financed by borrowing. If taxpayers their debts, total spending will: O decrease. O first increase and then decrease. O increase. O remain unchanged.
1. If the marginal propensity to consume is 0.8 in an economy, a $20 billion rise in Incomes will do what to GDP? (Tell if it will increase or decrease GDP, and by how much.) 2. Suppose that the level of government spending increased by $100 billion where the marginal propensity to consume is 0.5. Aggregate expenditures must have increased by: 3. The Government has a $.8 Trillion Growth target. What fiscal policy should they implement if MPS = .2?
If the government were to try to offset surplus years with deficit years over the business cycle, this would result in O A. a reduction in investment capital. O B. a higher debt-to-GDP ratio. OC. an annually balanced budget. O D. a structurally balanced budget. O E. a cyclically balanced budget.
A. Calculate the levels of consumption and savings that occurs when the economy is in equilibrium. B. Computer the government budget deficit in this economy. C. If government spending in banana land increases by $1000 what is the amount of the increase in equilibrium output? D. If taxes in banana land decrease by $1000 what is the new equilibrium output in this economy? E. To keep the government budget balanced, of both government spending and taxes in banana land increase by $1000 what is the change in equilibrium income level?
6)Suppose that the MPS = 0.2 and the government is interested in raising the level of output in the economy by$100 billion. Calculate how much the government would have to spend to achieve this objective. 9)Calculate how much output would expand by if the government increased spending by $500 billion and financedthis spending by increasing lump-sum taxes by the same amount.
Suppose that the investment demand curve in a certain economy is such that investment declines by $110 billion for every 1 percentage point increase in the real interest rate. Also, suppose that the investment demand curve shifts rightward by $170 billion at each real interest rate for every 1 percentage point increase in the expected rate of return from investment. If stimulus spending (an expansionary fiscal policy) by government increases the real interest rate by 2 percentage points, but also raises the expected rate of return on investment by 1 percentage point, how much investment, if any, will be crowded out? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
a) Suppose that there are no crowding-out effects and the MPC is 0.8. By how much must the government increase expenditures shift the aggregate-demand curve right $10 billion? b. The model of Long-run Growth, proposes that fiscal policy can have lasting effects on savings, investment, and economic growth. On the other hand, the model of Aggregate Demand-Aggregate Supply suggests that the only long run effect of fiscal policy is an increase in the price level. How could you use the Aggregate Demand and Aggregate Supply model for a more accurate description of the short-run and long-run effects of an increase in government spending? Could you distinguish between different uses of government expenditures to predict their effects on prices and output?
2. Suppose the economy is in recession. Policymakers estimate that aggregate demand is$100 billion short of the amount necessary to generate the long run natural rate of output.That is, if aggregate demand were shifted to the right by $100 billion, the economy would be inlong run equilibrium.a. Explain the impact on the economy if the government chooses to use fiscal policy to stabilizethe economy and the marginal propensity to consume (MPC) is given as 0.75 with no crowdingout.b. If there is a crowding out effect and investment is very sensitive to changes in the interest rate,should the government increase spending more or less than this amount?
9)Calculate how much output would expand by if the government increased spending by $500 billion and financed this spending by increasing lump-sum taxes by the same amount.
a) What are the three fiscal policy tools and how would each be used to counter a contractionary gap? b) True or False and explain: Fiscal Policy is effective at reducing the duration of an economic contraction. c) If the spending multiplier is 2.5 and the economy is in a $500 billion contractionary gap, how much should I increase government purchases to eliminate the gap? d) Continuing with c, if the MPC is 0.8, how much would I need to increase transfer payments to eliminate the $500 billion contractionary gap? e) True or False and explain: Households always react to tax changes in a predictable manner. Module 6: Deficits and the Debt. a) Distinguish between deficit and debt. b) Explain what crowding out is and why it reduces the impact of fiscal stimulus. c) True or false and explain: The national debt represents a threat of bankruptcy. (For d and e) Suppose the interest on the debt was $600 billion. If interest is paid domestically, 90% will be spent domestically (the remainder is…
Create three diagrams for the aggregate expenditures (AE) model for a public closed economy by adding different taxes. For the Diagram #1 suppose: Autonomous Expenditures: $6000; MPC: 0.75 Taxes: $1500;Potential Output: $16500For the Diagram #2 suppose: Autonomous Expenditures: $ 6000; MPC: 0.75;Taxes: $3000;Potential Output: $16500For the Diagram #3 suppose: Autonomous Expenditures: $6000; MPC: 0.75; Taxes: $2500Potential Output: $16500Explain each diagram by determining economic gaps and/or equilibriums. How does an increase in taxes affect GDP? How does a decrease in taxes affect GDP?
Suppose the government's present value of current and projected future outlays is 75 percent of GDP and its present value of current and projected future revenues is 50 percent of GDP. What gap does this describe, and what is the size of the gap? This information describes the _______. A. fiscal gap, which is 25 percent of GDP B. generational gap, which is 25 percent of GDP C. fiscal gap, which is 125 percent of GDP D. fiscal gap, which is – 25 percent of GDP