Microeconomics: Principles Problems & Policies (McGraw-Hill Series in Economics)
20th Edition
ISBN: 9780077660727
Author: McConnell
Publisher: MCG
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Chapter 18, Problem 4DQ
To determine
The most important revenue source.
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25) The graph above shows the market for a one-year discount bond with a face value of $1,000. The government's budget deficit increases by $150 million and to finance that deficit it borrows in this market. This will result in the private-sector borrowing to be crowded out by X dollars. What is the value of X?
O. 50
O. 100
O. 150
O. 200
26). The graph above shows the market for a one year discount bond with a face value of $1,000. The government's budget deficit increases by $150 million and to finance that deficit it borrows in this market. This results in the private-sector borrowing to be crowded out. At the end, the private sector will end up borrowing X dollars. What is the value of X?
O. 50
O. 100
O. 150
O. 200
O. 250
Suppose that the investment demand curve in a certain economy is such that investment declines by $110 billion for every 1 percentage point increase in the real interest rate. Also, suppose that the investment demand curve shifts rightward by $170 billion at each real interest rate for every 1 percentage point increase in the expected rate of return from investment. If stimulus spending (an expansionary fiscal policy) by government increases the real interest rate by 2 percentage points, but also raises the expected rate of return on investment by 1 percentage point, how much investment, if any, will be crowded out?
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You will get up vote for sure.
5. Suppose the interest rate on a taxable corporate bond is 7 percent while a municipal, tax exempt bond has an interest rate of 5 percent, and they are similar in every other way.a. Assuming the income tax rate is 30 percent, calculate the after tax interest rate on the corporate bond. Is it higher or lower than the after tax return on the municipal bond?b. What is the income tax rate that equalizes the after tax return between the corporate bond and the municipal bond.
Chapter 18 Solutions
Microeconomics: Principles Problems & Policies (McGraw-Hill Series in Economics)
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Similar questions
- Assume that the newly independent government of Tanzania employed you in 1964. Now free from British rule, the Tanzanian parliament has decided that it will spend 10 million shillings on schools, roads, and healthcare for the year. You estimate that the net taxes for the year are eight million shillings. The government will finance the difference by selling 10-year government bonds at 12% interest per year. Parliament must add the interest on outstanding bonds to government expenditure each year. Assume that Parliament places additional taxes to finance this increase in government expenditure so the gap between government spending is always two million. If the school, road, and healthcare budget are unchanged, compute the value of the accumulated debt in 10 years.arrow_forwardQ No.3 What we mean by Economic dues in case of Fiscal Policy in Islamic Economy? Discuss the function of Economic dues in the context of Zakah as a non-discretionary fiscal policy tool of Islamic Economy.arrow_forward3. a. Suppose that in a year when GDP is rising rapidly you also observe theGovernment budget balance increasing. How can you explain this correlation? b. Now suppose instead that in a year when GDP is rising rapidly you also observethe Government budget balance decreasing. How can you explain this correlation?arrow_forward
- 10. A decrease in Federal government taxes would: O. decrease in consumption and savings O. decrease transfers and government purchases O. increase in consumption and savings O. decrease importsarrow_forwardSuppose the government's present value of current and projected future outlays is 75 percent of GDP and its present value of current and projected future revenues is 50 percent of GDP. What gap does this describe, and what is the size of the gap?  This information describes the _______.   A. fiscal gap, which is 25 percent of GDP  B. generational gap, which is 25 percent of GDP  C. fiscal gap, which is 125 percent of GDP  D. fiscal gap, which is – 25 percent of GDParrow_forward13. Suppose that two countries differ on in the size of their MPC, where the MPC is high in country A and low in country B. Draw IS/LM and AD/AS curves for each country. In which country will monetary policy be most effective at changing income? Fiscal policy?arrow_forward
- 9) Suppose that the government starts with a debt of $10 billion. Then in year 1 there is a deficit of $50 billion, in year 2 there is a deficit of $70 billion, in year 3 there is a surplus of $40 billion, and in year 4 there is a deficit of $20 billion. What is the government debt at the end of year 4?arrow_forward6)Suppose that the MPS = 0.2 and the government is interested in raising the level of output in the economy by$100 billion. Calculate how much the government would have to spend to achieve this objective. 9)Calculate how much output would expand by if the government increased spending by $500 billion and financedthis spending by increasing lump-sum taxes by the same amount.arrow_forward7 Suppose a closed economy with no government spending which in equilibrium is producing an output and income of 1100. Â Suppose also that the marginal propensity to consume is 0.80, and that, if at full employment, the economy would produce an output and income of 3850 By how much would the government need to cut taxes (T) to bring the economy to full employment? (round your answer to the nearest whole value)arrow_forward
- 3)Show and explain how an expansionary fiscal policy can cause crowding-out effect by using aggregateexpenditure and aggregate output curves.2)What action could the TCMB take to reduce the crowding-out effect of an expansionary fiscal policy?1)By using graphs, show and explain the effects of an expansionary fiscal policy on the goods market by taking thelink between two markets into accountarrow_forward#wk4-10 Suppose that the investment demand curve in a certain economy is such that investment declines by $120 billion for every 1 percentage point increase in the real interest rate. Also, suppose that the investment demand curve shifts rightward by $170 billion at each real interest rate for every 1 percentage point increase in the expected rate of return from investment.If stimulus spending (an expansionary fiscal policy) by government increases the real interest rate by 2 percentage points, but also raises the expected rate of return on investment by 1 percentage point, how much investment, if any, will be crowded out?$Â Â billionarrow_forward
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