Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781337091985
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 18, Problem 6CQQ
To determine
The argument in agreement to taxing consumption.
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Explain how a progressive income tax system works as an automatic stabilizer in the economy during a recession; that is, explain what happens to income and taxes paid during a recession and how that change in taxes paid affects disposable income and consumption.
Explain, using appropriate diagrams, how a rise in the household saving rate cancause a fall in GDP, and how a fiscal stimulus might offset this.
Suppose the government borrows $20 billion more next year than this year.
a. Use a supply-and-demand diagram to analyse this policy. Does the interest rate rise or fall?
b. What happens to investment? To private saving? To public saving? To national saving? Compare the size of the changes to the $20 billion of extra government borrowing.
c. Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in the future. What does this belief do to private saving and the supply of loanable funds today? Does it increase or decrease the effects that you discussed in parts (a) and (b)?
Chapter 18 Solutions
Brief Principles of Macroeconomics (MindTap Course List)
Ch. 18.1 - Prob. 1QQCh. 18.2 - Prob. 2QQCh. 18.3 - Prob. 3QQCh. 18.4 - Prob. 4QQCh. 18.5 - Prob. 5QQCh. 18.6 - Prob. 6QQCh. 18 - Prob. 1CQQCh. 18 - Prob. 2CQQCh. 18 - Prob. 3CQQCh. 18 - Prob. 4CQQ
Ch. 18 - Prob. 5CQQCh. 18 - Prob. 6CQQCh. 18 - Prob. 1QRCh. 18 - Prob. 2QRCh. 18 - Prob. 3QRCh. 18 - Prob. 4QRCh. 18 - Prob. 5QRCh. 18 - Prob. 6QRCh. 18 - Prob. 7QRCh. 18 - Prob. 8QRCh. 18 - Prob. 9QRCh. 18 - Prob. 10QRCh. 18 - Prob. 1PACh. 18 - Prob. 2PACh. 18 - Prob. 3PACh. 18 - Prob. 4PACh. 18 - Prob. 5PACh. 18 - Prob. 6PACh. 18 - Prob. 7PACh. 18 - Prob. 8PA
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- Should the government fight recessions with spending hikes rather than tax cuts ? Explain.arrow_forwardShould fiscal policy encourage more consumption or more saving? Does it matter? I need a reason why.arrow_forwardHow will a contractionary fiscal policy affect a budget deficit? A.) Debts will decrease B.) No impact C.) Deficit will increase D.) Deficit will decreasearrow_forward
- assume the following economy autonomous consumption =£3m marginal propensity to consume= 0.8 business investment = 52 government spending =£127m income tax rate = 40% A. Find equilibrium size of income Y. B. Identify whether the government runs a budget deficit or a budget surplusarrow_forwarda. You are studying an economy with an income tax rate, t1, of 32% and an MPS of 0.3. It is currently suffering from a “recessionary gap” of $500 m. (i.e., Eqm Y<Y full employment, FE, aka Yn). Make the necessary calculations for the to policy that it should institute; who does what? Provide the full name of this policy. Compare this economy to one without income taxes to explain the term “automatic stabilizer.” [Hint: Let I change and compare the I multipliers in each of these economies.]arrow_forwarda) Write the equation representing snapshot of budget and Indicate the status of the budget as having a surplus or deficit, or balanced at Zero and explain why? How is this budget expected to affect the GDP? Explain! (b) Use the lump-sum tax and the MPC to calculate the decrease in consumption due to this lump sum tax (show all your calculations); then use the change in consumption you just obtained to find the consumption after tax (ca-fill in the column 7 below). (c) Use the Ca to find the (after-tax) aggregate expenditures for the 4-sector private-public-open economy (AEa) and fill in the column 8; Now use the column 1 and column 8 to find the new equilibrium GDP and DI in the 4-sector model. (d) Has GDP increased in the 4-sector compared with those in the previous 3-sector equilibrium? If so, by how much? What is the effective multiplier from 3-sector to 4-sector and why? Explain. (e) Has DI changed from 3-sector to 4-sector? Why/why not? How about consumption and savings? Explain…arrow_forward
- A fiscal Policy that seeks to promote stability and economic growth through tax cuts is?a) Restrictive Fiscal Policyb) Easy Money Policyc) Tight Money Policyd) Expansionary Fiscal Policyarrow_forwarda) Given the following values of consumption, investment, and government purchases (all in (in millions of $) at three point of Real GDP, calculate (in millions of $) and plot the Total Expenditures curve. Real GDP Consumption Investment Government Purchases Total Expenditure Q1 600 50 200 Q2 750 80 400 Q3 1000 100 600 b) Assume the economy is in recessionary gap. On the same diagram you in part a), show this case. If the government intervenes using fiscal policy, what sort of policy would they use? Which curve would they shift and why? Draw this shift on the same diagram.arrow_forwardWhich of the following would most likely occur if the federal government decreased its spending and reduced the size of the budget deficit during a period of full employment? a. The rate of inflation would decline. b. Interest rates would fall. c. The rate of inflation would rise. d. The government spending multiplier would double. give me correct and incorrect answer explanation and Dont use chatGPT otherwise i give multiple downvotearrow_forward
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