Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 29, Problem 3.2P
Sub part (a):
To determine
Equilibrium income and government deficit.
Sub part (b):
To determine
New value of equilibrium
Sub part (c):
To determine
New value of GDP and new value of government budget deficit.
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An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift up, the equilibrium level of aggregate output to__________ and the IS curve to shift to the__________ everything else held constant.
A) fall; right
B) rise; left
C) fall; left
D) rise: right
Which of the following statements concerning IS-MP analysis is true?
A) Changes in net exports arising from a change in interest rates causes a shift in the IS curve.
B) Expansionary fiscal policy will cause the interest rate to fall.
C) A fall in the money supply shifts the LM curve to the right.
D) For a given change in taxes, the IS curve will shift less than for an equal change in government spending.
LVTS participants with positive settlement balances at the end of the day.________
A) are paid the overnight rate
B) are paid the bank rate less 50 basis points
C) are paid the prime rate
D) are paid the bank rate
Assume there is a decrease in the aggregate demand, if expansionary fiscal policy is being used, the following action could be taken
a. increase consumption by raising disposable income through cuts in personal taxes or payroll taxes
b. increasing government spending by raising after-tax profits through cuts in business taxes
c. increase government purchases through increased Federal Government spending on final goods and services and raising grants to state and local government to increase their expenditures on final goods and services
d. All of the above
Suppose an economy is initially in equilibrium at its potential output level.
As a result of an unexpected crisis in the financial markets, the AD curve suddenly shift to the left by a horizontal distance equal to $140 billion.
Suppose the government has decided to restore the economy to its initial level of output by simultaneously increasing its spending and increasing taxes (so that it does not run into a deficit). Assuming the marginal propensity to consume in this economy is 0.25, by how much must the government increase its spending (and taxes) to achieve its goal? (Calculate your answer in billions of CAD, round it to one decimal places, and write it without units. E.g., write 1.0 for $1 billion.
Chapter 29 Solutions
Principles of Economics (12th Edition)
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