PRIN.OF ECON.ACCESS CODE
2nd Edition
ISBN: 9780393691757
Author: Mateer
Publisher: NORTON
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Chapter 27A, Problem 2QFR
To determine
To explain:
The working of the multiplier process.
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Government expenditures represents one of the injections of expenditure. Explain how an increase in government spending may have a multiplier effect in the economy.
Explain how MPC and the multiplier effect would impact a government’s attempt to stimulate its economy in each of the following scenarios.
To stimulate the economy already in a serious recession, the government spends a total of $700 million to send each person a stimulus check of $600.
Graphically illustrate the effect of an increase in government purchases. Explain the government spending multiplier effect by using at least 200 words.
Chapter 27A Solutions
PRIN.OF ECON.ACCESS CODE
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- The government spends an additional $926 billion and the marginal propensity to consume is 66%. How much will GDP increase due to this additional government spending? Enter your answer in billions and round to two decimal places.arrow_forwardWhat is the eventual effect on real GDP if the government increases its purchases of goods and services by $75,000? Assume the marginal propensity to consume (MPC) is 0.75. $ What is the eventual effect on real GDP if the government, instead of changing its spending, increases transfers by $75,000? Assume the MPC has not changed. $ An increase in government transfers or taxes, as opposed to an increase in government purchases of goods and services, will result in an identical eventual effect on real GDP. no change to real GDP. a larger eventual effect on real GDP. a smaller eventual effect on real GDP.arrow_forwardSuppose that out of the original 100 of government spending, 33 will be recycled back into purchases of domestically produced goods and services in the second round and 10.89 is spent in the third round. Following this multiplier effect, what will the value of the total aggregate expenditures be after the fourth round in the cycle is completed?arrow_forward
- Review one government policy implemented between 2000-2010 and discuss the multiplier effects it had on the economy.arrow_forwardQuestion #4 - Use the aggregate expenditures model to demonstrate the multiplier effect.arrow_forwardPretend you are a member of the Council of Economic Advisers and are trying to persuade the members of the House Appropriations Committee to purchase $100 billion worth of new materials, in part to stimulate the economy. Explain to the members how the multiplier process will work.arrow_forward
- Explain how MPC and the multiplier effect would impact a government’s attempt to stimulate its economy in each of the following scenarios. To stimulate the economy already in a serious recession, the government spends a total of $700 million to send each person a stimulus check of $600. The stimulus check is either mailed to the taxpayer or in the form of a tax credit. It is seen as a fiscal policy of tax reduction. Lowering or reducing tax burdens raises family disposable income, which boosts consumption and saving among consumers and enterprises. Through the use of a tax multiplier, it encourages people and businesses to invest or spend more. It causes an increase in demand, which motivates firms to spend more and recruit more people, resulting in even more demand. The MPC influences the output via the multiplier through this vicious loop. To stimulate the economy already in a serious recession, the government spends a total of $700 million to construct nationwide highspeed…arrow_forwardIf the marginal propensity to consume (MPC) is 0.8, the government purchases multiplier will be This means that a $1 increase in government purchases will lead to a $ increase in real GDP.arrow_forwardPlease answer the following questions based on the given information: a = 50, MPC -0.8, 1-100, G-200, EX-100, IM- 50 (where a is the autonomous spending. MPC is the marginal propensity to consume, I is the investment, G is the government spending, EX is the export, and IM is the import) 1) What is the equilibrium level of output (income), Ye, in this economy? 50 Agg Expenditure C+I+G+NX- M+I+G+NX p Agg Expenditure Income (Real GOP) 2) Suppose the Ye (actual GDP) that you derived from the previous question is lower than the potential GDP level. Calculate the G' value to find how much the government spending is required to reach the potential GDP at 2,400? G 48 degree P" => ↑ C++G+Nxx Aus GDP AET-CH-GNX AEZ-C+I+G+NX Y, GDP)arrow_forward
- Critically examine the doctrine of the Multiplier.arrow_forwardUsing insights from various closed and open macroeconomic models discussed in class, explain how the efficacy of a Government expenditure multiplier may be substantially muted in the case of: a closed economy; and an open Use neatly labeled graphs to explain your answer.arrow_forwardIf the MPC in an economy is 0.90, a $4 billion increase in government spending will ultimately increase real GDP byarrow_forward
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