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To determine
The government expenditure required to retain the full employment level in the economy
Step by step
Solved in 2 steps
- What would happen to the level output income if the government increase tax collections on personal income by 100 billion and spent the entire mouth. Assume MPS equals .20.If a tax rate of 1/3 of national income were introduced, what would be the new equilibrium level of national income in the economy outlined above. Show all your workings and explain the mechanisms through which the economy reaches the new equilibrium.The government is considering raising the tax rate on labor income. Explain the supply-side effects of such an action and use appropriate graphs to show the directions of change, not exact magnitudes. What will happen to: The supply of labor and why? The demand for labor and why? Equilibrium employment and why? The equilibrium before-tax wage rate and why? The equilibrium after-tax wage rate and why? Potential GDP? Explain your response with specifics and provide examples.
- Determine the net impact upon the nation's economy that results from equal increases in government spending and taxes of $10 billion when the MPC is .8. Show your work.C = 450 + 0.4Y I = 350G = 150X = 70Z = 35 + 0.1Y T = 0.15YYf = 1550Calculate the tax revenue to the government of this country when the economy (2) remains in equilibrium.Calculate what the new equilibrium income should be if the government of this (6) country decides to cancel all taxes, implying the tax rate would now be 0%.Before the government decreased the tax rate, how much of government spending was required to bring the economy to full employment?Suppose equilibrium GDP is less than full-employment output and the economy is in a recession. What are the appropriate fiscal policies that would take the economy to full employment level? A) Increase Taxes B) Decrease governmnet spending C) Lower transfer payments D) Decrease Taxes
- Assume that initial GDP is $1,000 and we want to expand it to $1,600. Average MPC for the country is 2/3. What should be the new level of government spending if the initial level is $100. Also how much of a tax policy change reach to the same results?What is the distinction between government purchases and transfer payments? What is the relative importance of these two types of expenditures in total government expenditures expressed as a per cent of GDP? Why are some government purchases necessary to administer transfer payments by the government?Why $100 spent by government brings a larger increase in the equilibrium level of income than $100 given in tax cut? Explain your answer.
- Assume the following model of the expenditure sector: S=C+I+G+Nx TR=100 C=420+(4/5)YD I=160 G=180 Nx=-40 YD=Y+TR-TA TA=(1/6)Y Assume you increase both government purchases (G) and taxes (TA) by the same lump sum of deltaG=deltaTA=+300. Would this be sufficent to reach the full employment level of output at Y*=2700? Why or why not?Consider an economy that is described by the following: C = 500 + 0.75Yd I = 100 G = 100 T = 100 a. Derive the equilibrium level of income b. Derive the effects of a PhP 10 increase in government spending on equilibrium income c. Derive the effects of a PhP 10 increase in income taxes on equilibrium income.C = 1,600 + 0.8(Y – T) I = 1000 G = 1,800 X = M = 0 T = 3,000 + 0.01Y Suppose the flow of GDP consistent with full employment is 10,000. What marginal tax rate would achieve full employment?
