Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781337091985
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 16, Problem 3QR
To determine
Multiplier and crowding out effect on aggregate demand.
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The government spends $3 billion to buy police cars.Explain why aggregate demand might increase bymore or less than $3 billion.
Differentiate the macroeconomic effects that explain the causes of the differences of government spending in aggregate demand. Describe your answer.
Explain with example how a reduction in taxes without a reduction in government spending may have no impact on aggregate demand.
Chapter 16 Solutions
Brief Principles of Macroeconomics (MindTap Course List)
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- From a Keynesian point of view, which is more likely to cause a recession: aggregate demand or aggregate supply, and why?arrow_forwardHow does increased government spending affect the aggregate demand curve?arrow_forwardWhich of the following will cause a decrease in aggregate demand? A) Increase in government spending B) Decrease in discount rate C) Increase in taxes D) the FED buying government securities from the publicarrow_forward
- List pros and cons of government spending. Can government spending be shown on the IS model or the aggregate demand model?arrow_forwardThe Australian government is concerned about the growing budget deficit, so they decide to cut government expenditures by $15 billion. They also decide the economy needs a boost so they decide to cut income taxes by $40 billion. Would this simply mean a net increase in aggregate demand of $25 billion? Why or why not?arrow_forwardExamine the following policies and determine which would decrease the level of aggregate demand. Decreasing in government spending and decreasing taxes Increasing investment and increasing government spending Increasing consumption and decreasing taxes Decreasing in government spending and increasing in taxesarrow_forward
- Consider two policies-a tax cut that will last for only one year, and a tax cut that is expected to be permanent. which policy will stimulate greater spending by consumers? which is policy will have the greater impact on aggregate demand? explainarrow_forwardConsider an economy that is operating below the full-employment level of real GDP. What would be the effect of an increase in government spending on aggregate demand and real GDP?arrow_forwardOne way that the government can increase aggregate demand is by: A. reducing income taxes. B. increasing the interest rates. C. reducing government spending. D. increasing business taxes.arrow_forward
- Explain why increased government spending of, for example, $15 billion, will have a different impact on aggregate demand than a $15 billion tax cut.arrow_forwardIf the MPS in an economy is 0.1, government could shift the aggregate demand curve rightward by $40 billion by( please explain as well ) A) increasing government spending by $4 billion. B) increasing government spending by $40 billion. C) decreasing taxes by $4 billion. D) increasing taxes by $4 billion.arrow_forwardAn economist who claims that an increase in government spending would result mainly in a higher price level believes the economy is operating where the Group of answer choices aggregate supply curve is steep. MPC is small. aggregate supply curve is flat. MPC is large.arrow_forward
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