EBK PRINCIPLES OF MACROECONOMICS
12th Edition
ISBN: 9780134079592
Author: Oster
Publisher: YUZU
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Chapter 14, Problem 3.2P
Sub part (a):
To determine
Equilibrium income and government deficit.
Sub part (b):
To determine
New value of equilibrium GDP and the new deficit.
Sub part (c):
To determine
New value of GDP and new value of government budget deficit.
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Data is provided below for a small closed economy.
Output/Income = 10,000
Consumption = 600 + 0.75(Y - T)
Investment = 400
Taxes = 2,000
Government expenditure = 2,000
Assuming that fiscal policy has a multiplier effect and that investment and taxes remain unchanged, what will happen to output if government expenditure decreased by 500?
Select one:
It would increase by 500
It would decrease by 667
It would decrease by 500
It would increase by 2,000
It would decrease by 2,000
It would increase by 667
Assuming you are the Minister of Finance and Economic Planning for Nigeria, in charge of Fiscal Policy. The Research Director of the Ministry brought you the following data on Nigeria’s for the previous fiscal year, 2021.
An examination of the data reveals that, during the fiscal year 2021, households in Nigeria saved 20% of their disposable income (Yd) and spent the rest on consumption. In addition, ₦5,000.00 was spent on Consumption expenditure (C), which is independent of income and Gross Private Investment (I) was ₦ 7,000.00. Total Government expenditure (G) which stood at ₦8,000.00 was supposed to be financed by a lump sum tax of ₦2,000.00 (independent of income) and a proportional tax rate of 25% of national income. Exports (X) stood at ₦2,500.00. In addition, the country’s import (M) during the previous fiscal year comprises of ₦1,000.00 which was independent of the country’s national income and 10% which was dependent of the country’s national income. Given these data on…
C = 450 + 0.4Y I = 350G = 150X = 70Z = 35 + 0.1Y T = 0.15YYf = 1550Calculate the tax revenue to the government of this country when the economy (2) remains in equilibrium.Calculate what the new equilibrium income should be if the government of this (6) country decides to cancel all taxes, implying the tax rate would now be 0%.Before the government decreased the tax rate, how much of government spending was required to bring the economy to full employment?
Chapter 14 Solutions
EBK PRINCIPLES OF MACROECONOMICS
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