Economics For Today
10th Edition
ISBN: 9781337613040
Author: Tucker
Publisher: Cengage Learning
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Question
Chapter 21, Problem 18SQ
To determine
The impact of increase in tax by $250 billion when the MPC is 0.75.
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Assume the marginal propensity to consume (MPC) is 0.6 and the government increases taxes by $30 billion. The aggregate demand curve will shift .......
Select one:
a. inward and to the left by $45 billion.
b. outward and to the right by $18 billion.
c. inward and the the left by $18 billion.
d. outward and to the right by $45 billion.
Assume that the short run equilibrium GDP is $4,000 billion and the potential GDP is $5,000 billion. The marginal propensity to consume is 0.8.
[a] Would you classify this society more inclined to consume or save? Explain .
[b] By how much would you advise the President to adjust the government spending and the taxes? Show your work.
Macroeconomics: Assuming marginal propensity to consume is 0.5. If there is a shock to the economy that increases investment spending by 200 billion dollars what will the total Change to GDP be? (Ignore taxes and imports)
Chapter 21 Solutions
Economics For Today
Ch. 21.3 - Prob. 1YTECh. 21 - Prob. 1SQPCh. 21 - Prob. 2SQPCh. 21 - Prob. 3SQPCh. 21 - Prob. 4SQPCh. 21 - Prob. 5SQPCh. 21 - Prob. 6SQPCh. 21 - Prob. 7SQPCh. 21 - Prob. 8SQPCh. 21 - Prob. 9SQP
Ch. 21 - Prob. 10SQPCh. 21 - Prob. 11SQPCh. 21 - Prob. 1SQCh. 21 - Prob. 2SQCh. 21 - Prob. 3SQCh. 21 - Prob. 4SQCh. 21 - Prob. 5SQCh. 21 - Prob. 6SQCh. 21 - Mathematically, the value of the tax multiplier in...Ch. 21 - Prob. 8SQCh. 21 - Prob. 9SQCh. 21 - Prob. 10SQCh. 21 - Prob. 11SQCh. 21 - Prob. 12SQCh. 21 - Prob. 13SQCh. 21 - Prob. 14SQCh. 21 - Prob. 15SQCh. 21 - Prob. 16SQCh. 21 - Prob. 17SQCh. 21 - Prob. 18SQCh. 21 - Prob. 19SQCh. 21 - Prob. 20SQ
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- Assume that the marginal propensity to consume is 0.6 and potential output is $1000 billion. If real GDP is $1100 billion: Select one: a. there is an inflationary gap. b. the economy is in long-run equilibrium. c. there is a recessionary gap. d. government transfers should be decreased.arrow_forwardDuring the 1930s the U.S. entered the Great Depression. During the Great depression investment fell from a yearly rate of $16.7 billion to $1.7 billion. In 1932, President Hoover increased income taxes. Assume the MPC is .92 A) What effect did the decline in investment have on aggregate demand (AD) ? B) Assume that Hoover increased income taxes by $12 billion. How would Hoover’s tax increase have affected AD.arrow_forwardThe expiration of the FICA payroll tax cut of January 1, 2013 raised taxes by $110 billion per year. If the marginal propensity to save was 0.20, (a) by how much did consumer spending decrease initially? (b) What was the ultimate decline in aggregate demand?arrow_forward
- Calculate the total change in aggregate spending if investment decreases by $250 billion and the marginal propensity to consume is 0.9. Instructions: Enter your response as a whole number. Aggregate demand decreases by $ ________billion.arrow_forwardConsider two policies, a tax cut that lasts for only 2 years and a tax cut that is expected to be permanent. Which policy will stimulate greater spending by consumers? Which policy will have the greater impact on aggregate demand? Select one: a. permanent tax cut; 2-year tax cut b. permanent tax cut; permanent tax cut c. 2-year tax cut; 2-year tax cut d. 2-year tax cut; permanent tax cutarrow_forwardIf the marginal propensity to consume is 0.75, net taxes are fixed at $2,000, and real income rises by $12,000, by how much will real consumption spending increase? a. $12,000 b. $7,500 c. $9,000 d. $7,000 e. $8,000arrow_forward
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- The determinants of aggregate demand explain shifts in the aggregate demand curve. How does a change in investment spending affect aggregate demand? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forwardThe marginal propensity to consume (mpc) is 0.8. In addition, government spending increases by $200 billion and lump sum taxes fall by $100 billion. What is the total change in the equilibrium real GDP, if the price level is fixed in the short run?arrow_forward10.1For each of the following events,explain the short-run and long-run effects on output and price level,assuming policymakers take no action. a) The stock market declines sharply,reducing consumers' wealth. b) The federal government increases spending on national defence. 10.2 In which of the following circumstances is expansionary fiscal policy more likely to lead to a short-run increase in investment?Explain. a)When the investment accelarator is large or when it is small?arrow_forward
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