Principles of Economics Plus MyLab Economics with Pearson eText (2-semester access) -- Access Card Package (12th Edition)
12th Edition
ISBN: 9780134426846
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 30, Problem 5.1P
Sub part (a):
To determine
Effects on the multiplier.
Sub part (b):
To determine
Effect on multiplier.
Sub part (c):
To determine
Effect of multiplier on tax rebate.
Sub part (d):
To determine
Effect of multiplier on decreases in government spending.
Sub part (e):
To determine
Effect of multiplier on progressive income tax.
Sub part (f):
To determine
Effect of multiplier on
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
True or False? Explain:
The multiplier effect is likely to be greatest when the government spending is targeted at the poorest
The poor will always spend most of the money they get as benefits as soon as possible
Multiplier effect does not depend on who receives the money
The richest people will spend a larger proportion of their money than the poorest
There might be many factors (economic and non-economic) that affect the size of the multiplier. What are some that you think could influence its size? Which ones do you think would make it larger, and which are more likely to make it smaller?
Pretend 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.
Chapter 30 Solutions
Principles of Economics Plus MyLab Economics with Pearson eText (2-semester access) -- Access Card Package (12th Edition)
Knowledge Booster
Similar questions
- In economics, the multiplier effect refers to the fact that when there is an injection of money to consumers, the consumers spend a certain percentage of it. That amount recirculates through the economy and adds additional income, which comes back to the consumers and of which they spend the same percentage. This process repeats indefinitely, circulating additional money through the economy. Suppose that in order to stimulate the economy, the government institutes a tax cut of $8 billion. If taxpayers are known to save 7% of any additional money they receive, and to spend 93%, how much total money (T) will be circulated through the economy by that single $10 billion tax cut?arrow_forwardWhy would a higher tax rate lower the government purchases multiplier? What does the tax rate have to do with the government purchases multiplier?arrow_forwardGive an example of any factor that influence the size of the multiplierarrow_forward
- Suppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (AD1AD1). Suppose now that the government increases its purchases by $3.5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2AD2) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2AD2) is parallel to AD1AD1. You can see the slope of AD1AD1 by selecting it on the following graph The following graph plots equilibrium in the money market at an interest rate of 6% and a quantity of money equal to $60 billion. Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. Suppose that for every increase in the interest rate of one percentage point, the level of investment…arrow_forwardSuppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (AD1AD1). Suppose now that the government increases its purchases by $2.5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2AD2) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2AD2) is parallel to AD1AD1. You can see the slope of AD1AD1 by selecting it on the following graph. The following graph plots equilibrium in the money market at an interest rate of 3% and a quantity of money equal to $15 billion. Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. Suppose that for every increase in the interest rate of one percentage point, the level of investment spending…arrow_forwardRefer the table below and answer the questions that follow. Aggregate Output ($ million) Y Aggregate Consumption ($ million) C Aggregate Saving ($ million) S Planned Investment ($ million) I Aggregate Expenditure AE = C+I 2,000 1,500 700 2,400 1,800 700 2,800 2,100 700 3,200 2,400 700 3,600 2,700 700 Fill in the table and find the equilibrium income. Find the MPC, MPS and the multiplier. If the planned investment increases by $100 million find the new equilibrium level of income.arrow_forward
- What is the multiplier effect? What relationship does the MPC bear to the size of the multiplier? The MPS? What will the multiplier be when the MPS is 0, .4, .6, and 1? What will it be when the MPC is 1, .90, .67, .50, and 0? How much of a change in GDP will result if firms increase their level of investment by $8 billion and the MPC is .80? If the MPC is .67?arrow_forwardHow do you calculate marginal propensity to consume and how does it effects the multiplier?arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
Economics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Macroeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506756Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Macroeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning