Macroeconomics
13th Edition
ISBN: 9780134744452
Author: PARKIN, Michael
Publisher: Pearson,
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Question
Chapter 13, Problem 9SPA
(a)
To determine
Explain the intended effect of extending tax cut for middle-class Americans.
(b)
To determine
Explain the effect of tax cuts.
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Students have asked these similar questions
You are given data on the following variables in an economy:
Item
Value
Government spending
300
Planned investment
200
Net exports
50
Autonomous taxes
250
Income tax rate
0.1
Marginal propensity to consume
0.5
Consumption (C) is 600 when income (Y) is equal to 1500.
a.
Solve for autonomous consumption and equilibrium level of output if there is an income tax t=0.2.
b.
In the economy with an income tax of 10%, what is the budget balance of the government?
c.
Briefly explain the function of the multiplier as part of Keynesian
C = 480 + 0.5YDI = 110T = 70G = 250
a. Calculate the private savings, public savings, and investment spending.b. Calculate the multiplier and explain how it affects equilibrium output.c. Suppose that the government decides to increase its spending from €250 billion to €300 billion. Find the equilibriumoutput, consumption, and disposable income. Why wouldthe government decide to expand fiscal spending?
Topic: Fiscal Policy
1. A government collects $0.35 on every new dollar of income. Of the remaining $0.65 of disposable income, 20% is spent on imports, and 10% of the disposable income is saved.
a. What is the marginal propensity to withdraw?b. How much of each new dollar of income is spent on domestic consumption?c. What is the spending multiplier in this economy?
Chapter 13 Solutions
Macroeconomics
Ch. 13.1 - Prob. 1RQCh. 13.1 - Prob. 2RQCh. 13.1 - Prob. 3RQCh. 13.1 - Prob. 4RQCh. 13.1 - Prob. 5RQCh. 13.2 - Prob. 1RQCh. 13.2 - Prob. 2RQCh. 13.2 - Prob. 3RQCh. 13.2 - Prob. 4RQCh. 13.2 - Prob. 5RQ
Ch. 13.3 - Prob. 1RQCh. 13.3 - Prob. 2RQCh. 13.3 - Prob. 3RQCh. 13.3 - Prob. 4RQCh. 13.3 - Prob. 5RQCh. 13.4 - Prob. 1RQCh. 13.4 - Prob. 2RQCh. 13.4 - Prob. 3RQCh. 13.4 - Prob. 4RQCh. 13.4 - Prob. 5RQCh. 13 - Prob. 1SPACh. 13 - Prob. 2SPACh. 13 - Prob. 3SPACh. 13 - Prob. 4SPACh. 13 - Prob. 5SPACh. 13 - Prob. 6SPACh. 13 - Prob. 7SPACh. 13 - Prob. 8SPACh. 13 - Prob. 9SPACh. 13 - Prob. 10SPACh. 13 - Prob. 11SPACh. 13 - Prob. 12APACh. 13 - Prob. 13APACh. 13 - Prob. 14APACh. 13 - Prob. 15APACh. 13 - Prob. 16APACh. 13 - Prob. 17APACh. 13 - Prob. 18APACh. 13 - Prob. 19APACh. 13 - Prob. 20APACh. 13 - Prob. 21APACh. 13 - Prob. 22APACh. 13 - Prob. 23APACh. 13 - Prob. 24APACh. 13 - Prob. 25APACh. 13 - Prob. 26APACh. 13 - Prob. 27APACh. 13 - Prob. 28APA
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- Economist Arthur Laffer famously pointed out that, in some cases, income tax revenue can actually go up when tax rates go down. Why might this be the case?arrow_forwardOnly typed answer Explain why the multiplier falls when taxes depend on income. .1 Assume the following for the economy of a country: a. Consumption function: C = 60 + 0.75Yd b. Investment: I = 75 c. Government spending: G = 45 d. Net taxes: T = - 25 + 0.2Y e. Disposable income: Yd. = Y - T f. Equilibrium: Y = C + I + G Solve for equilibrium income. How much does the government collect in net taxes when the economy is in equilibrium? What is the government’s budget deficit or surplus?arrow_forwardChapter 9 6.Use the following table to answer these questions: Y C I G X $ 500 $ 500 $ 10 $ 20 $ 60 $ 600 $ 590 $ 10 $ 20 $ 40 $ 700 $ 680 $ 10 $ 20 $ 20 $ 800 $ 770 $ 10 $ 20 $ 0 $ 900 $ 860 $ 10 $ 20 - $ 20 $ 1,000 $ 950 $ 10 $ 20 - $ 40 a. What is the MPC? b. What is the MPS? c. What is the MPI? d. What is the level of aggregate expenditures at each level of income? e. Graph the aggregate…arrow_forward
- economic The hypothetical information in the following table shows what the situation will be in 2016 if the government does not use fiscal policy: table (image) a. If the government wants to move real GDP to its potential level in 2016, should it use expansionary policy or contractionary policy? In your answer make sure you explain whether the government should be increasing or decreasing government purchases and taxes.b. If the government is successful in moving real GDP to its potential level in 2016, state whether each of the following will be higher, lower or the same as it would have been if they had taken no action: i. Real GDP ii. Potential GDP iii.The inflation rate iv.The unemployment rate.c. Draw a dynamic aggregate demand and aggregate supply graph to illustrate your answer. Make sure that your graph contains LRAS curves for 2015 and 2016; SRAS curves for 2015 and 2016; AD curves for 2015 and 2016, with and without fiscal policy action; and equilibrium real GDP and the…arrow_forwardChapter 11 Answer exercises 11-14 on the basis of the following information. Assume that equilibrium real GDP is $ 800 billion, potential real GDP is $ 950 billion, the MPC is .80, and the MPI is .40. 11.What is the size of the GDP gap? 12.How much must government spending increase to eliminate the GDP gap? 13. How much taxes fall to eliminate the GDP gap? 14. If government spending and taxes both change by the same amount, how much must they change to eliminate the recessionary gap? 15. Suppose the MPC is .90 and the MPI is .10. If government expenditures go up $ 100 billion while taxes fall $ 10 billion, what happens to the equilibrium level of real GPD? Use the following equations for exercises 16-18 C = $ 100 + .8 Y I = $ 200 G = $ 250 X = $100 - .2 Y 16. What is the…arrow_forwardQUESTION 40 Assume the economy is in a recession and real GDP is below its potential level of output. The MPC is .75, and the government increases spending by $100billion. How much will aggregate expenditures rise? A) $100 billion B) $75billion C) $400billion D)$133 billionarrow_forward
- A friend of yours argues that federal government spending is out of control and significant cuts in spending are needed to reduce the size of the government. She tells you that if we cut federal government spending on research and foreign aid, it will really reduce the size of the government. Refer to Figure 2 in the text for information on the budget. a. What percentage of federal government spending comes from research and foreign aid? b. How much will the federal government spend on research and foreign aid if the federal government's total spending is $1.2 trillion.arrow_forwardSuppose that the following equations describe the economy of the country of the Philippines.C= 500 + 0.8 (Y – T), I= 200, G= 300, NX= 50, T= 200, Yf= 5000; where C=consumption level, I=investment, G=government expenditures, NX=net exports, T=taxes and Yf=full employment output/income.Use this information to find each of the following:4.1. Investment, government and tax multiplier.4.2. Equilibrium output/income.4.3. The output gap.4.4. By how much would government expenditures have to change to eliminate the output gap?arrow_forward1. Suppose the MPC is .90 and the MPI is .10. if government expenditure goes up $100 billion while taxes fall $10 billion, what happen to the equilibrium level of real GDP? Use following equations for exercise 2-4 C= $100 + .8Y I=$200 G= $250 X = $100 - .2Y 2. What is the equilibrium level of real GDP? 3. What is the new equilibrium level of real GDP if government spending increases by $150? 4. What is the new equilibrium level of real GDP if government spending and taxes both increase by $150? 5. Make a graph showing the spending and tax revenue of your state government for as many years as you can find (use the government of your home country if you are not from the United States). What trends do you notice? What spending categories make up the largest share of the state budget? What are the largest sources of revenue?arrow_forward
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