Pearson eText Macroeconomics -- Access Card
7th Edition
ISBN: 9780136850014
Author: Hubbard, Glenn, O'Brien, Anthony
Publisher: PEARSON
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Question
Chapter 16.A, Problem 1PA
To determine
Government purchases multiplier, balanced budget multiplier, and tax multiplier.
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Calculate the government spending multiplier and the tax multiplier if the MPC is 0.6. Show your work
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Multiple Choice
0.19
0.23
-4.26
-0.19
Chapter 16 Solutions
Pearson eText Macroeconomics -- Access Card
Ch. 16.A - Prob. 1PACh. 16.A - Prob. 3PACh. 16.A - Prob. 4PACh. 16.A - Prob. 5PACh. 16 - Prob. 16.1.1RQCh. 16 - Prob. 16.1.2RQCh. 16 - Prob. 16.1.3RQCh. 16 - Prob. 16.1.4PACh. 16 - Prob. 16.1.5PACh. 16 - Prob. 16.1.6PA
Ch. 16 - Prob. 16.1.7PACh. 16 - Prob. 16.2.1RQCh. 16 - Prob. 16.2.2RQCh. 16 - Prob. 16.2.3PACh. 16 - Prob. 16.2.4PACh. 16 - Prob. 16.2.5PACh. 16 - Prob. 16.2.6PACh. 16 - Prob. 16.2.7PACh. 16 - Prob. 16.2.8PACh. 16 - Prob. 16.3.1RQCh. 16 - Prob. 16.3.2RQCh. 16 - Prob. 16.3.3PACh. 16 - Prob. 16.3.4PACh. 16 - Prob. 16.3.5PACh. 16 - Prob. 16.3.6PACh. 16 - Prob. 16.4.1RQCh. 16 - Prob. 16.4.3RQCh. 16 - Prob. 16.4.4PACh. 16 - Prob. 16.4.5PACh. 16 - Prob. 16.4.6PACh. 16 - Prob. 16.4.7PACh. 16 - Prob. 16.4.8PACh. 16 - Prob. 16.4.9PACh. 16 - Prob. 16.5.1RQCh. 16 - Prob. 16.5.2RQCh. 16 - Prob. 16.5.3PACh. 16 - Prob. 16.5.4PACh. 16 - Prob. 16.5.5PACh. 16 - Prob. 16.5.6PACh. 16 - Prob. 16.5.7PACh. 16 - Prob. 16.6.1RQCh. 16 - Prob. 16.6.2RQCh. 16 - Prob. 16.6.3RQCh. 16 - Prob. 16.6.4RQCh. 16 - Prob. 16.6.5PACh. 16 - Prob. 16.6.6PACh. 16 - Prob. 16.6.7PACh. 16 - Prob. 16.6.9PACh. 16 - Prob. 16.6.10PACh. 16 - Prob. 16.6.11PACh. 16 - Prob. 16.7.1RQCh. 16 - Prob. 16.7.2RQCh. 16 - Prob. 16.7.3RQCh. 16 - Prob. 16.7.4PACh. 16 - Prob. 16.7.5PACh. 16 - Prob. 16.7.7PACh. 16 - Prob. 16.7.8PACh. 16 - Prob. 16.1CTE
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- Suppose that real GDP for an economy is currently 16,000 billion, the government purchases multiplier is 2.2 and the tax multiplier is -1.2. If the government deploys additional spending of 600 billion and cuts taxes by 120 billion, where will GDP end up (in billion)?arrow_forwardWhat's the tax multiplier if MPC = 0.75? Select one: a. -4 b. -3 С. 3 d. 0.33arrow_forwardExplain carefully why the tax multiplier is negative and why it is smaller in absolute value than the government expenditure multiplier.arrow_forward
- Suppose the tax multiplier in an economy is -8. If the government wants to lower total spending (TS) by $8000 what should they do to Taxes (T)? Group of answer choices a. they should increase taxes by $64000 b. they should decrease taxes by $64000 c. they should increase taxes by $1000 d. they should decrease taxes by $1000arrow_forwardA. 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.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 0.62 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_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 0.67 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_forwardIf the MPC is 0.5, the tax multiplier is Select one: a. -1 b. -2.5 C. -1.67 d. -2arrow_forwardMPC = 0.75. Calculate the spending multiplier and the tax multiplier Spending multiplier = 2.5. Calculate the MPC and the tax multiplier Tax multiplier = 4.0. Calculate the MPC and the spending multiplierarrow_forward
- Consider a hypothetical closed economy in which households spend $0.80 of each additional dollar they earn and save the remaining $0.20. The marginal propensity to consume (MPC) for the economy is______, and the spending multiplier for the economy is______. suppose the government in this economy decides to decrease the government purchases by $300 billion. The decrease in government purchases will lead to a decrease in income generating an initial change in consumption equal to______. This decreases income yet again, causing a second change in consumption equal to_______. the total change in demand resulting from the initial change in government spending is_____________. The following graph shows that aggregate demand curve (AD1) for this economy before the change in government spending. Use the green line (triangle symbol) to plot the new aggregate demand curve (AD2) after the spending multiplier effect takes place. Hint: be sure that the new aggregate demand curve (AD2) is parallel…arrow_forwardCalculate the government spending and tax multipliers for each income bracket, considered separately. MPC Tax Multiplier Income/spending Multiplier Household income 0-$30,000 $31,000-50,000 $51,000-80,000 $80,000 and above 0.9 0.8 0.75 0.6arrow_forwardSuppose there is some hypothetical closed economy in which households spend $0.75 of each additional dollar they earn and save the remaining $0.25. The marginal propensity to consume (MPC) for this economy is _____ , and the spending multiplier for this economy is _____ Suppose the government in this economy decides to decrease government purchases by $250 billion. The decrease in government spending will lead to a decrease in income, creating an initial change in consumption equal to $______ billion. This decreases income yet again, leading to a second change in consumption equal to $________ billion . The total change in demand resulting from the initial change in government spending is $ ________ trillion. The following graph shows the aggregate demand curve (AD1AD1) for this economy before the change in government spending. Use the green line (triangle symbol) to plot the new aggregate demand curve (AD2AD2) after the multiplier effect takes place. For simplicity,…arrow_forward
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