MACROECONOMICS (LOOSELEAF)-PACKAGE
13th Edition
ISBN: 9781337492317
Author: Baumol
Publisher: CENGAGE L
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Chapter 11.A, Problem 1DQ
To determine
To explain: The impact created upon the multiplier as a result of the income-tax rate declining.
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How does an increase in tax influence the size of the multiplier
Pretend you are a member of the Council of Economic Advisers and are trying to persuade the members of the House Appropriations Committee to purchase $100 billion worth of new materials, in part to stimulate the economy. Explain to the members how the multiplier process will work.
Why would a higher tax rate lower the government purchases multiplier? What does the tax rate have to do with the government purchases multiplier?
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MACROECONOMICS (LOOSELEAF)-PACKAGE
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- Review one government policy implemented between 2000-2010 and discuss the multiplier effects it had on the economy.arrow_forwardLogically discuss the impact of the increase in government taxes on consumption.arrow_forwardWhy is the tax multiplier smaller than the government spending multiplier?arrow_forward
- Suppose the following list of events describes all of the economic activity resulting from an increase in government spending. Suppose that at each step after the initial one, the marginal propensity to consume is 0.62 and the tax rate is 8%. Step 0. The government spends $8500 on meat to host a very large dinner for foreign diplomats. Step A. The butcher takes the income earned by selling the meat, saves some, and spends the rest on a wedding cake for his daughter. Step B. The baker who produced the wedding cake saves some of her earnings and uses the rest to purchase beautiful candlesticks as gifts for all of her friends. Step C. The local candlestick maker saves some of his revenue for retirement and spends the rest on building materials to improve his house. Instructions: Modify the settings in the interactive tool to represent this event. Then click "Spending Rounds" and use the table to answer the following questions. Round answers to the nearest cent, if necessary. How much does…arrow_forwardThere might be many factors (economic and non-economic) that affect the size of the multiplier. What are some that you think could influence its size? Which ones do you think would make it larger, and which are more likely to make it smaller?arrow_forwardSuppose the following list of events describes all of the economic activity resulting from an increase in government spending. Suppose that at each step after the initial one, the marginal propensity to consume is 0.67 and the tax rate is 16%. Step 0. The government spends $8500 on meat to host a very large dinner for foreign diplomats. Step A. The butcher takes the income earned by selling the meat, saves some, and spends the rest on a wedding cake for his daughter. Step B. The baker who produced the wedding cake saves some of her earnings and uses the rest to purchase beautiful candlesticks as gifts for all of her friends. Step C. The local candlestick maker saves some of his revenue for retirement and spends the rest on building materials to improve his house. Instructions: Modify the settings in the interactive tool to represent this event. Then click "Spending Rounds" and use the table to answer the following questions. Round answers to the nearest cent, if necessary. How much…arrow_forward
- Does MPC matter when using taxes to stimulate the economy in the short-run?arrow_forwardIn the country of Krugman, a business spent $100 million building a factory. GDP eventually increased by 200 million. People spend 11% of every dollar on imports. What is the marginal propensity to consume in this economy? Write your answer as a number, between 0 and 1. If you think the answer is 0, write 0.00, not 0. Answer: Study the graph below. When will the multiplier be biggest? Select one: The multiplier will be the same size no matter what Aggregate Demand is b. The multiplier will be one no matter what aggregate demand is When aggregate demand is at AD1 d. When aggregate demand is at AD3 e When aggregate demand is at AD2 Price Level AD₁ AS e All of these are true AD₂ AD₁ GDP Why is potential output called potential, when it is not actually the most the economy can produce? Select one: a. Because potential is the most the economy can produce right now, with the technology and workers and equipment we have right now. Ob. Because economists just like to be confusing for no reason…arrow_forwardGraphically illustrate the effect of an increase in government purchases. Explain the government spending multiplier effect by using at least 200 words.arrow_forward
- Government expenditures represents one of the injections of expenditure. Explain how an increase in government spending may have a multiplier effect in the economy.arrow_forwardShould the government fight recessions with spending hikes rather than tax cuts ? Explain.arrow_forwardAssume there is no discretionary increase in government spending. Explain how an improving economy will affect the budget balance and, in turn, investment and the trade balance.arrow_forward
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