BuyFindarrow_forward

Economics:

10th Edition
BOYES + 1 other
Publisher: Cengage Learning
ISBN: 9781285859460

Solutions

Chapter
Section
BuyFindarrow_forward

Economics:

10th Edition
BOYES + 1 other
Publisher: Cengage Learning
ISBN: 9781285859460
Chapter 11, Problem 15E
Textbook Problem
320 views

Suppose the MPC is .90 and the MPI is .10. 1f government expenditures go up $100 billion while taxes fall$10 billion, what happens to the equilibrium level ofreal GDP?

To determine

To compute:

The equilibrium level of real GDP

Explanation of Solution

Given information:

The value of MPC is .90 .and the value of MPI is .10.

Government expenditure is $100billion while the taxes fall $10billion.

Calculation of the equilibrium Gross Domestic Product by both tax cut and equilibrium government spending are as follows:-

Calculation of the change in equilibrium GDP when government spends $100billion

  Multiplier=changeinequilibirumGDPchangeinautonmousexpenditure5=changeinequilibirumGDP100Changeinequilibrium=100×5=$500billion

Thus, the change in equilibrium Gross Domestic Product is $500billion when government spends $100billion.

Calculation of the change in equilibrium Gross Domestic Product due to tax cut:-

Substitute the value in the formula:-

Here the value of tax will be taken as negative since the tax reduction is occurring that is $10billion

  Tax Multiplier=changeinequilibirumGDPTaxCut4=changeinequilibirumGDP10Changeinequilibrium=10×4=$40bil

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Textbook Solutions

Find more solutions based on key concepts
Show solutions add
What are the differences between Internal and external recruiting?

Foundations of Business (MindTap Course List)

Distinguish buy-side and sell-side systems.

Accounting Information Systems

PURCHASING POWER PARITY In the spot market, 12.8 Mexican pesos can bo exchanged for 1 U.S. dollar. A compact di...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

When does a country become an exporter of a good? An importer?

Principles of Macroeconomics (MindTap Course List)

What factors generally are considered in determining the allocation of profits and losses?

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)