Answered: There is an increase in government…

There is an increase in government expenditures financed by taxes and its overall short-run effect on output is larger than the change in government spending. Which of the following is correct?

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter16: Monetary Policy

Section: Chapter Questions

Problem 11SQ

See similar textbooks

Related questions

Q: Consider an AS AD diagram. What would happen in the model if Stock values decreased? Group of…

A: AD-AS model is used to determine equilibrium real GDP and price level.

Q: The neutral interest rate is the rate at which: Group of answer choices macroeconomic equilibrium…

A: Interest rate is the rate at which people make an exchange of monetary instruments at the…

Q: Which of the following would not cause shift in the investment demand curve as the above graph…

A: The investment demand curve is downward sloping. It shows the relationship between investment by…

Q: If firms are less optimistic that future profits will rise and remain strong for the next few years,…

A: Answer to the question is as follows :

Q: .If a government tax cut has its intended effect of increasing consumer spending, then you know that…

A: Meaning of Fiscal Policy: The term fiscal policy refers to the situation under which the…

Q: Assume the economy starts at full-employment. There is a global pandemic. Which of the following…

A: Pandemic refers to the situation when people face a significant downturn in economic activities at…

Q: Assume the economy starts at full-employment. There is a global pandemic. Which of the following…

A: The pandemic or the outbreak of the diseases would result in the contractionary phase in the economy…

Q: Consider the economy of Banana. a. The consumption function is given by C = 200 + 0.75(Y − T), The…

A: NOTE: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the…

Q: Crowding out will be greater A. the more sensitive investment spending is to changes in the…

A: GDP is the gross domestic product which is the value of newly produced goods and services in a…

Q: Consider an initial IS-LM equilibrium with normally-sloped curves. An increase in government…

A: IS-LM equilibrium: The IS-LM (Investment Savings-Liquidity Preference Money Supply) model is…

Q: Assume i=0%, beta=1. Consumer has income of 80 in year 1, 100 in year 2. Now suppose gov't gives…

A: The consumer has an income of 80 in year 1 and an additional 10 given by the government. when…

Q: Suppose at the income level of SR 50,000 million, saving amounts to SR 11,000 million. An income at…

A: consumer income is usually split into two part MPS and MPC which states that the part of income…

Q: Desired consumption is Cd = 2000 + 0.9Y - 100,000r - G, and desired investment is I d = 1000 -…

A: Macroeconomic equilibrium refers to the situation where the aggregate demand in the economy is…

Q: Consider the economy of Prometheus represented by the following information: Marginal Propensity to…

A: As we know that Income is equal to total demand of goods and service in the economy when it is in…

Q: Within the IS-LM curve model, if the government cut taxes at the same time that there was an…

A: In the IS-LM model, IS curve explains the situation of the goods or product market, while LM curve…

Q: In this question, we assume Canada is a closed economy and is in its long-run equilibrium.…

A: Meaning of IS-LM Curve: The term IS-LM curve refers to the combination between market goods and…

Q: Consider the IS curve where consumption depends on the present discounted value of income. Suppose…

A: A) Investment savings curve is poularly known as IS curve. It shows different combinations of…

Q: Suppose that with the liquidity facilities and asset purchase programs, the Bank of Canada increased…

A: Equilibrium is achieved at the point where IS and LM curve intersects each other. IS curve consists…

Q: An increase in households’ desired money holding causes an increase in interest rates. How does this…

A: Household's supply of money in the form of bank deposit is a major source of supply of funds in the…

Q: What is the relationship between the marginal and average propensity to consume in the standard…

A: Concept: Average propensity to consume is the ratio of total consumption to total income which…

Q: "Suppose an economy with output at the natural level and there is an increase in consumer…

A: Meaning of Disposable Income: Here, the term disposable income reflects the income level saved by…

Q: Suppose the desired consumption function of Canadaland is given by C^d= 0.5 + 0.7Y - 10r - 0.1G,…

A: Suppose the desired consumption function of canadaland is given by C^d = 0.5 +0.7Y - 10r - 0.1G…

Q: Which statement best defines the permanent income hypothesis? Consumer spending depends on the…

A: The permanent Income Hypothesis is a theory of spending of the consumers which states that…

Q: A movement up a given aggregate demand curve is the result of * A rising money supply Increased…

A: When there is up movement of aggregate demand,it is simply the reslt of expansion in value level…

Q: Explain whether each of the following statements is true or false : A). An increase in the ratio of…

A: The multiplier of money is described as a situation in which an initial deposit can lead to a final…

Q: Use the loanable fund's diagram to explain how you would expect an increase in inflationary…

A: “Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for…

Q: Assume that investment spending is no longer affected by output but only by interest rates. Given…

A: Here, it is given that investment spending is only affected by the change in interest rate as a…

Q: With the help of an IS-LM diagram, explain the effects of an expected future tax increase on current…

A: A macroeconomic model known as the IS-LM links interest rates, which are controlled by the…

Q: The classical dichotomy refers to the separation of a. decisions made by the public and decisions…

A: Classical dichotomy- Independence of real variable from an alteration in the money supply and…

Q: Consider the economy of Ethiopia. a. The consumption function is given by C = 200 + 0.75(Y – T). The…

A: Given : C=200+0.75(Y-T) I=200-25r (M/P)d= Y-100r

Q: A reduction in income will cause a reduction in the interest rate. 2. In the wage-setting relation,…

A: In an economy, economic variables have direct or indirect relation with each other as they all have…

Q: The classification of government spending as an investment or having an investment-effect depends…

A: The classification of government spending as an investment or having an investment effect can be…

Q: Consider an economy in which taxes, planned investment, government spending on goods and services,…

A: Given information Ca=1500-20r MPC=0.6 I=2450-60r G=1980 NX=-200 T=1750

Q: Suppose a fall in stock prices makes people feel poorer. The decrease in wealth would induce people…

A: Aggregate demand shows the total demand for final goods and services produced in an economy during a…

Q: Consider an economy in which taxes, planned investment, government spending on goods and services,…

A: According to bartleby guideline I have answered only first three questions.

Q: Identify how planned investment will change in each scenario. In an effort to reduce constant…

A: To identify the change in planned investments.

Q: With the help of an IS-LM diagram, explain the effects of an expected future tax increase on current…

A: A macroeconomic model called the IS-LM connects an economy's short-term production level to interest…

Q: Compare the ultimate effects of an increase in interest rates in an economy with a low marginal…

A: The marginal propensity to consume (MPC) is outlined in social science because the proportion of AN…

Q: Consider an economy in which government purchases, taxes, and net exports are all zero. The…

A: GDP (Gross Domestic Product) is the sum of all goods and services produced within a country within a…

Q: According to the Keynesian ideas on Aggregate Demand, a macroeconomist would most likely expect…

A: Interest rate: - it is the percentage charge on the principal amount by a lender to a borrower

Question

There is an increase in government expenditures financed by taxes and its overall short-run effect on output is larger than the change in government spending. Which of the following is correct?

A) By themselves, both the change in the output and the change in the interest rate decrease desired investment.

B) By themselves, both the change in output and the change in the interest rate increase desired investment.

C) By itself, the change in the output decreases desired investment spending and by itself the change in the interest rate increases desired investment spending.

D) BY itself, the change in output increases desired investment spending and by itself the change in the interest rate decreases desired investment spending.

Expert Solution

This question has been solved!

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

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

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

Consider a scenario of a closed economy in the short run where price level is fixed. Assume that both taxes and money supply increase in a way that keep output constant in equilibrium (suppose that the marginal propensity to consume is less than one). Which of the following may result from the policy change? a) It will lead to an increase in investment but a decrease in consumption.b) It will result in an increase in investment but a decrease in government spending.c) It will lead to an increase in investment and private saving.d) It will decrease investment but increase in public saving.
When the investment accelerator is large, expansionary fiscal policy is likely to lead to a short-run increase in investment than when the investment accelerator is small. True or False: Expansionary fiscal policy is more likely to lead to a short-run increase in investment when the interest rate sensitivity of investment is large than when it is small. True False
After the global financial crisis, there has been a heated debate about whether the sluggish recovery in advanced economies reflects the secular stagnation or a slowing trend under debt overhang. Advocates of secular stagnation argue that tepid investment spending along with subdued consumption by households would result in persistent output gap and slow growth for many years to come. Also, the resulting excess of global savings over global investment in turn would put the real interest rate on a downward path. There are several explanations for this secular stagnation hypothesis. Which of the following cannot be viewed as such explanation?a. Decline in investment rates due to a dearth of profitable investment opportunitiesb. Decline in the relative price of investment goods – hence the same investment projects can be pursued by committing a smaller share of GDP, which results in a lower amount of investment in total.c. Decline in population growth rate means capital has less…
In a small closed economy, its aggregate demand and output are given as the equations below, Y = C + I + G; national output or GDP. C = 100 + 0.5(Y-T); consumption, marginal propensity to consume MPC = 0.5. I = 150 – 10*r; investment is a negative function of real interest rate (r as %). (M/P)d = Y – 20*r; real money demand which is adjusted by price level (inflation). G = 200; as government spending. T = 200; as tax. M = 2,400; as money supply. P = 4; the price level. (1) With the equations above, try to derive the IS curve. Tip: recall IS curve represent the relation between national output (Y) and real interest rate (r) in goods market. To derive IS curve, you need to put all components of Y together and find its connection with r. (2) Use the same equations, now try to derive the LM curve. Tip: recall LM curve represent the relation between national output (Y) and real interest rate (r) in money market. So to derive LM curve, you need to consider money supply and demand.…
Crowding out will be greater A. the more sensitive investment spending is to changes in the interest rate. B. if the economy is in recession, rather than at full employment. C. the further equilibrium GDP is below potential GDP. D. the less sensitive consumption spending is to changes in the interest rate.
Discuss: In the medium run, a fiscal expansion leads to an increase in the natural rate of interest.
When long-term interest rates rise, consumption expenditure and investment _______ and aggregate demand _______. A. decrease the same day; decreases a year later B. decrease a year later; decreases a year later C. increase a year later; increases a year later D. decrease about two years later; decreases about two years later
When long-term interest rates rise, consumption expenditure and investment _______ and aggregate demand _______. A. decrease the same day; decreases a year later B. decrease a year later; decreases a year later C. increase a year later; increases a year later D. decrease about two years later; decreases about two years later thanks !!! z
Suppose that the Federal funds rate rose from 3% to 6% during the year. What would you expect to happen to the rate of growth in real consumption, and in the consumption/income ratio, under the following circumstances? (A) The corporate bond rate rose from 6% to 9%. (B) The corporate bond rate remained unchanged at 6%. (C) The stock market declined 20%. (D) The stock market was unchanged. (E) The unemployment rate rose from 5% to 6%. (F) The unemployment rate was unchanged.
Assume that the consumption function is given by C = 200 + 0.5(Y – T) and the investment function is I = 1,000 – 200r, where r is measured in percent, G equals 300, and T equals 200.Assume that the equilibrium in the money market may be described as M/P = 0.5Y – 100r, and M/P equals 800. Calculate the equilibrium r and Y. Calculate the government spending multiplier.
Which of the following will block an increase in the money supply from increasing real GDP (presumably to fight a recession)? Group of answer choices A) A situation in which business investment is negatively related to the interest rates. B) A situation in which the money demand curve is negatively sloping. C) A situation in which an increase in money supply causes a decrease in interest rates. D) A situation in which Aggregate Demand is negatively sloping. E) A situation in which business investment is completely insensitive to interest rate changes.
Consider a tax cut which affects not only consumer disposable income, but also after-tax earnings from labor supplied to labor markets and from financial assets acquired through saving. In the long run we would expect this tax cut to A decrease the level of real GDP. B decrease the price level. C increase both the price level and the level of real GDP. D decrease the price level and increase the level of real GDP.