Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Question
Chapter 19, Problem 6QQ
To determine
The impact of tax cut on investment.
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In what direction will each of the following occurrences shift the investment demand curve, other things equal?
a. An increase in unused production capacity occurs.
b. Business taxes decline.
c. The cost of equipment fall.
d. Widespread pessimism arises about future business conditions and sales revenue.
e. A major new technological breakthrough creates prospects for a wide range of profitable new products.
Which of the following would not cause shift in the investment demand curve as the above graph shows?
Select one:
a. Business taxes
b. Expectations
c. Changes in real interest rates
d. Acquisition, maintenance, and operating costs
e. Technological change
Now consider an economy in which the government lowers its spending. In the long run, the result would be _____________ in the price level and _____________ in real output.
an increase; an increase
a decrease; no change
a decrease; a decrease
None of the listed options is correct.
no change; a decrease
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Similar questions
- The classification of government spending as an investment or having an investment-effect depends on: a. How the spending affects current consumption. b. How the spending affects future productivity. c. How the spending affects current stock prices. d. How the spending affects future stock prices.arrow_forwardLimit your answers within 5 pages. Hard-copy, no email attachments. 1 PART - I 1.1 Multiple Choice Questions Q1 The government raises lump-sum taxes on income by $100 billion, and the neoclassical economy adjusts so that output does not change. If the marginal propensity to consume is 0.6, public saving: A) rises by $100 billion. B) rises by 860 billion. C) falls by $60 billion. D) falls by $100 billion. Q2 Based on the table, owners' equity will fall to zero if loan defaults reduce the value of total assets by percent. A) 10 percent. B) 20 percent. C) 30 percent. D) 40 percent. Assets Reserves Loans Securities Bank Balance Sheet $ 10,000 $ 100,000 $ 40,000 1 Liabilities and Net Worth Deposits Debt Equity $ 100,000 $ 20,000 $ 30,000arrow_forwardWhen the value of average propensity to save is negative, then the value of marginal propensity to save will also be negative.arrow_forward
- Assume the marginal propensity to consume is 0.8. To offset a fall in income of 1,000 the government should a. raise taxes by $250. b. increase government spending and taxes by 1,000. c. increase taxes by $200. d. cut taxes by $200.arrow_forward1.4. The deflationary gap in an economy is calculated to be $700 billion. The marginal propensity to save (MPS) is 0.1 The marginal propensity to import is (MPM) 0.15 The marginal rate of taxation is (MPT) 0.1. By how much would the government need change its spending on goods and services to eliminate the deflationary gap? 1.5. How does CHANGE in PRICES effect your lives? 1.6. Explain why INFLATION usually accelerates during wartime? Macroeconomics and the goals of Macroeconomic policyarrow_forwardAn economic expansion leads to ________ needs-tested spending and ________ tax revenues. a. lower; lower b. lower; higher c. higher; higher d. higher; lower e. lower; no change inarrow_forward
- Suppose that there’s a recessionary gap, and the country wishes to produce its potential output. Which of the following policy initiatives might help it reach this goal? A.the government increases taxes on consumers and corporations. B.the government initiates policies that encourage private investment spending. C.the government cuts spending programs. D.the government initiates policies that discourage private investment spending.arrow_forwardIf firms are less optimistic that future profits will rise and remain strong for the next few years, then: Select one: a. investment spending will fall. b. investment spending will rise. c. investment spending will remain unaffected. d. investment spending will rise at first, then fall.arrow_forwardA decrease in personal income taxes will increase employment if the economy is operating in? A. Region 3 of AS function. B. Both region 1 and region 3 of the AS function. C. Neither region 1 nor region 2 of the AS function. D. Region 1 of the AS function. E. None of the above.arrow_forward
- The marginal propensity to consume for this economy is …………. if income rises from $9000 to $10000 and consumption is rises from $750 to $1500 0.650. 0.750. 0.650 or 0.664, depending on whether income is $10,000 or $11,000. 0.800.arrow_forwardConsumption and Saving- End of Chapter Problem Which one of the following reasons makes it easier to forecast the impact of an income change on consumption for hand-to-mouth consumers than for consumption smoothers? It is easier because hand-to-mouth consumers only spend their permanent income. hand-to-mouth consumers save a large portion of their income. the marginal propensity to consume is 1 for consumption smoothers. hand-to-mouth consumers spend their entire income as they earn it.arrow_forwardA drop in the price level will have what effect in the aggregate demand model and the income-expenditure model?A.decreases aggregate demand and planned expenditures.B.increases aggregate demand, but decreases planned expenditures.C.decreases aggregate quantity demanded, but increases planned expenditures.D.increases aggregate quantity demanded and planned expenditures.arrow_forward
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