Assume the marginal propensity to consume (MPC) is 0.6 and the government increases taxes by $30 billion. The aggregate demand curve will shift ....... Select one: a. inward and to the left by $45 billion. b. outward and to the right by $18 billion. c. inward and the the left by $18 billion. d. outward and to the right by $45 billion.

Assume the marginal propensity to consume (MPC) is 0.6 and the government increases taxes by $30 billion. The aggregate demand curve will shift ....... Select one: a. inward and to the left by $45 billion. b. outward and to the right by $18 billion. c. inward and the the left by $18 billion. d. outward and to the right by $45 billion.

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter15: Fiscal Policy

Section: Chapter Questions

Problem 17SQ

See similar textbooks

Similar questions

Assume that the short run equilibrium GDP is $4,000 billion and the potential GDP is $5,000 billion. The marginal propensity to consume is 0.8. [a] Would you classify this society more inclined to consume or save? Explain . [b] By how much would you advise the President to adjust the government spending and the taxes? Show your work.
Assume that the marginal propensity to consume is 0.6 and potential output is $1000 billion. If real GDP is $1100 billion: Select one: a. there is an inflationary gap. b. the economy is in long-run equilibrium. c. there is a recessionary gap. d. government transfers should be decreased.
If the marginal propensity to consume is 0.75, net taxes are fixed at $2,000, and real income rises by $12,000, by how much will real consumption spending increase? a. $12,000 b. $7,500 c. $9,000 d. $7,000 e. $8,000
Assume the marginal propensity to consume is 0.8. To offset a fall in income of 1,000 the government should a. raise taxes by $250. b. increase government spending and taxes by 1,000. c. increase taxes by $200. d. cut taxes by $200.
Consider two policies, a tax cut that lasts for only 2 years and a tax cut that is expected to be permanent. Which policy will stimulate greater spending by consumers? Which policy will have the greater impact on aggregate demand? Select one: a. permanent tax cut; 2-year tax cut b. permanent tax cut; permanent tax cut c. 2-year tax cut; 2-year tax cut d. 2-year tax cut; permanent tax cut
Calculate the total change in aggregate spending if investment decreases by $250 billion and the marginal propensity to consume is 0.9. Instructions: Enter your response as a whole number. Aggregate demand decreases by $ ________billion.
The economy of Newland is in short-run macroeconomic equilibrium. The current real output is $400 billion, and the full employment output is $500 billion. The marginal propensity to consume is 0.8. (a) Is the economy experiencing a recessionary output gap or an inflationary output gap? Explain. (b) Assume Newland’s government is considering taking action to close the output gap identified in part (a). (i) Calculate the minimum change and indicate the direction of change in government spending required to shift the aggregate demand curve to close the output gap. Show your work. (ii) If instead Newland’s government changes income taxes without changing government spending, calculate the minimum change and indicate the direction of change in income taxes required to shift the aggregate demand curve to close the output gap. Show your work. (c) Which fiscal policy action, changing government spending or changing income taxes, is more effective in closing the output gap? Explain. (d)…
The marginal propensity to consume (mpc) is 0.8. In addition, government spending increases by $200 billion and lump sum taxes fall by $100 billion. What is the total change in the equilibrium real GDP, if the price level is fixed in the short run?
The tax rate is 0.4. The marginal propensity to import is 0.5 . When real GDP increases from $20,000 to $20,198, consumption increases from $18,000 to $18,050. What is the marginal propensity to consume?
With the economy in a recession due to inadequate aggregate demand, the government increased its spending by $1,200. Suppose the central bank takes no action for the time being, and the marginal propensity to consume is 2/3, how large will the increase of aggregate demand approximately?
In an economy with no government and no foreign sectors, autonomous consumer spending is $250 billion, planned investment spending is $350 billion, and the marginal propensity to consume is 2/3. a) Plot the aggregate consumption function and planned aggregate spending. b) What is unplanned inventory investment when real GDP equal $600 billion? c) What is Y*, income-expenditure equilibrium GDP? d) What is the value of the multiplier? e) If planned investment spending rises to $450 billion, what will be the new Y*?
The expiration of the FICA payroll tax cut of January 1, 2013 raised taxes by $110 billion per year. If the marginal propensity to save was 0.20, (a) by how much did consumer spending decrease initially? (b) What was the ultimate decline in aggregate demand?