Use the AS-AD model to describe the crowding-out effect of private investment occurring when the government decides to decrease taxation (T). Your analysis should include the AS-AD, IS-LM, and the money market graph.
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a) Use the AS-AD model to describe the crowding-out effect of private investment occurring when the government decides to decrease
b) Assume that the government asked you to estimate how the above reduction in taxes will affect the income/
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- (a) Assume that Gross Domestic Product (GDP)/Total output (Y) is 6,000. Consumption (C) is given by the equation C = 600 + 0.6(Y – T) where T is the tax. Investment (I) is given by the equation I = 2,000 – 100r, where r is the real rate of interest, in percent. Taxes (T) are 500, and government spending (G) is also 500. What are the equilibrium values of C, I, and r?It is said that, the national budget is an annual development plan for the state and it is more than ordinary financial statement. Covid-19 epidemic outbreak has had a devastating impact on most economies specially Ghana. It therefore requires expert knowledge and prudent economic decision making to recover the economy. As a special assistant to the Minister of Finance, indicate the macroeconomic targets you will consider appropriate to be factored into 2021 national budget? Demonstrate clearly in each case how the performance targets set could be achieved using appropriate economic policy measures.Is is possible for federal investment to have a negative rate of return? Yes, if the spending results in a strong crowding-out effect or if state and local governments substitute towards federal investment by reducing stateand local investment. Either would potentially reduce future productivity and output (GDP), resulting in a negative return. Yes, if the spending results in a weak crowding-out effect or if state and local investments complement the increase in federal investment by. Either would potentially reduce future productivity and output (GDP) and hence result in a negative return. No. At worst, federal investment can have no future return as the expenditure offered some form of service (ex. jobs training) or useful infrastructure (ex. highways). No. If in the future there were a negative return, the federal government would increase expenditures again to offset it.
- Question Two a. Explain the difference between a binding and non-binding borrowing constraints and thetwo consumption functions that result.b. From the Intertemporal Choice Model, many theories (non-Keynesian theories ofConsumption) came into being. Using graphical and mathematical expressions, compareand contrast the following theories on consumption behaviours:i. Franco Modigliani: Life-Cycle Hypothesisii. Milton Friedman: Permanent-Income Hypothesisiii. Robert Hall: Random Walk HypothesisDesired consumption is Cd = 2000 + 0.9Y - 100,000r - G, and desired investment is I d = 1000 - 45,000r. Real money demand is Md/P =Y - 6000i. Other variables are πe = 0.03, G = 500, Y = 1000, and M = 2100. Required (a) What feature in this example leads to the result that you don’t need to know the amount of taxes collected by the government to find the equilibrium?Consider a closed economy. The profits of private corporations constitute a fraction ?of national income. These profits are subject to corporate tax and a fraction ? of the net profits is distributed to owners. The remaining profits are invested in theeconomy. To encourage investment, the government proposes to cut the corporation tax. The corporation tax is proportional and so is the regular tax but the rates are notnecessarily the same.Analyse the effects of the government proposal assuming that wages and pricesare flexible. Will there be any ambiguity about the results?
- Given MPC (marginal propensity to consume) = 0.75, if the government implements an expansionary fiscal policy as (1) cutting taxes by $10 billion, then by how much would total spending increase over an infinite period? (2) spending $10 billion, then by how much would total spending increase over an infinite period?A country is in the midst of a recession with a real GDP estimated to be $1.8 million below potential GDP. The governement's policy analyss believe the current value of the marginal propensity to consume (MPC) is 0.90. (Please answer all parts) a. If the government wants real GDP to equal potential GDP, by how much should it increase governement spending? Alternatively, by how much should it reduce taxes? b. Suppose that during the recession people have become less confident and decide they will spend only 50% of any additional income. In this case, if the governement increases spending by the amount calculated in part A, will real GDP end up less than , greater than or equal to potential GDP? by how much? c. With the same decrese in consumer spending as described in part B, if the governement decreases taxes by the amount calculated in part A, will real GDP end up less than, greater than or equal topotential GDP? by how much? d. Why is it difficult for the governement to predict…A. Assume that a hypothetical economy with an MPC of .75 is experiencing severe recession. By how much would government spending have to rise to shift the aggregate demand curve rightward by $70 billion? B. How large a tax cut would be needed to achieve the same increase in aggregate demand?
- Suppose actual real GDP is $14 trillion and potential real GDP is $18.5trillion. If the marginal propensity to consume (MPC) is 0.85and government purchases increase by $526billion, then to close this gap lump-sum taxes should change by $_______billion. Please respond accurately and provide a detailed explanation with calculations; if not, I will downvote several times. Note:- Please avoid using ChatGPT and refrain from providing handwritten solutions; otherwise, I will definitely give a downvote. Also, be mindful of plagiarism. Answer completely and accurate answer. Rest assured, you will receive an upvote if the answer is accurate.Please no written by hand and no emage In South Africa explain the following Explain the risks associated with the use of Tax Expenditure Subsidies as a substitute for direct expenditure programmes Describe the role of fiscal policy as a discrete objective of Government Describe the fiscal policy areas of intervention and the strengths and weaknesses of alternative approaches Analyse the manner in which tax, expenditure and government borrowing interact in affecting macroeconomic outcomes Compare the competing views on the relationship between fiscal policy and the achievement of inclusive growth (i.e. addressing inequality and unemployment)How much government spending needs to be increased to maintain full employment in the economy if the economy was facing recessionary gap of $800 billions? Assume MPC is .8. How much tax cut should government give if they wanted to eliminate this recessionary gap through tax cut