MACROECONOMICS FOR TODAY
10th Edition
ISBN: 9781337613057
Author: Tucker
Publisher: CENGAGE L
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Chapter 11, Problem 8SQ
To determine
The implication of the tax multiplier with value -4.30.
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Students have asked these similar questions
A. If your MPC = 0.6 and government spending (G) increases by $800.
What will happen to the equilibrium income?
The Effect of Taxation:
Tax Multiplier = -MPC X Spending Multiplier
Problems:
B. If the MPC = 0.8 and taxes go up by $1000, what will happen to the equilibrium income?
Please fully complete both problems.
Please check the solution to (a) and (b) of the following problem for accuracy and elaborate:
Given MPC (marginal propensity to consume) = 0.75, if the government implements an expansionary fiscal policy as
(a) cutting taxes by $10 billion, then by how much would total spending increase over an infinite period?
(b) spending $10 billion, then by how much would total spending increase over an infinite period?
MPC = 0.75
Tax multiplier = (-MPC / 1) = (-0.75 / 1 – 0.75) = (-0.75 / 0.25) = -3.
(a) Cutting taxes by $10 billion.
The total spending increase by (-3) (-$10 billion) = $30 billion.
Spending multiplier = (1/1 – MPC) = (1 / 1 – 0.75) = 1 / 0.25 = 4
(b) Spending 1ncrease by 10 billion.
The total spending increase by (4) ($10 billion) = $40 billion.
Suppose the government uses a balanced-budget policy, Önancing its expenditure bylump-sum taxes (i.e., G = T)
Suppose the government wants to achieve the same output level as in the no-taxcase in 1 (b) above. (output level = 3800)i. Does it have to increase or decrease its expenditure (G) and taxes (T) with G = T , and by how much?ii. What is the value of the balanced-budget multiplier?iii. In the no-tax case in 1 (b); the G-policy can eliminate any trade imbalance(i.e., make NX = 0). Would the government be able to achieve exact tradebalance as well under the balanced-budget policy here? If not, would therebe a trade surplus or trade deficit, and how big is the surplus/deficit
Chapter 11 Solutions
MACROECONOMICS FOR TODAY
Ch. 11.3 - Prob. 1YTECh. 11 - Prob. 1SQPCh. 11 - Prob. 2SQPCh. 11 - Prob. 3SQPCh. 11 - Prob. 4SQPCh. 11 - Prob. 5SQPCh. 11 - Prob. 6SQPCh. 11 - Prob. 7SQPCh. 11 - Prob. 8SQPCh. 11 - Prob. 9SQP
Ch. 11 - Prob. 10SQPCh. 11 - Prob. 11SQPCh. 11 - Prob. 1SQCh. 11 - Prob. 2SQCh. 11 - Prob. 3SQCh. 11 - Prob. 4SQCh. 11 - Prob. 5SQCh. 11 - Prob. 6SQCh. 11 - Prob. 7SQCh. 11 - Prob. 8SQCh. 11 - Prob. 9SQCh. 11 - Prob. 10SQCh. 11 - Prob. 11SQCh. 11 - Prob. 12SQCh. 11 - Prob. 13SQCh. 11 - Prob. 14SQCh. 11 - Prob. 15SQCh. 11 - Prob. 16SQCh. 11 - Prob. 17SQCh. 11 - Prob. 18SQCh. 11 - Prob. 19SQCh. 11 - Prob. 20SQ
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- 1. Consider an economy with the initial equilibrium income level of $1000 and the consumption function of C = $150 + 0.6 (Y - T). Find the following quantities:a. Government expenditures at the equilibrium level of income if T = $160 and I = $100.b. The change in income produced by increasing taxes 10%, provided that G and I remain unchanged. What is the tax multiplier?c. The change in income produced by increasing government expenditures 10%, provided that T and I remain unchanged. What is the government spending multiplier?d. Based on your answers to (b) and (c), does the balanced budget multiplier theorem hold?arrow_forwardSuppose that real GDP is currently $17.1 trillion, potential GDP is $17.4 trillion, and the tax multiplier is -1.6. Byhow much will taxes have to change to bring the economy to equilibrium at potential GDP?arrow_forwardConsider the following consumption function: C (Y)=0.8(Y-T) where Y represents income and T represents net taxes. Suppose that investment, I, is 100; government spending, G, is 200; and, net taxes, T, are 100. 1)The equilibrium level of output is: a. 1200 b. 900 c. 1100 d. 1000 Tha values for the government expenditure and tax multipliers are, respectively: a. 5 and -4 b. -2 and 2 c. 2 and 2 d. 2 and 4arrow_forward
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