EP ECONOMICS,AP EDITION-CONNECT ACCESS
20th Edition
ISBN: 9780021403455
Author: McConnell
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 31, Problem 3RQ
To determine
Recession 2007-2009.
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Students have asked these similar questions
Suppose that the investment demand curve in a certain economy is such that investment declines by $110 billion for every 1
percentage point increase in the real interest rate. Also, suppose that the investment demand curve shifts rightward by $190 billion at
each real interest rate for every 1 percentage point increase in the expected rate of return from investment. If stimulus spending (an
expansionary fiscal policy) by government increases the real interest rate by 2 percentage points, but also raises the expected rate of
return on investment by 1 percentage point, how much investment, if any, will be crowded out?
Instructions: Enter your answer as a whole number.
billion
%24
Suppose that the investment demand curve in a certain economy is such that investment declines by $110 billion for every 1 percentage point increase in the real interest rate. Also, suppose that the investment demand curve shifts rightward by $170 billion at each real interest rate for every 1 percentage point increase in the expected rate of return from investment. If stimulus spending (an expansionary fiscal policy) by government increases the real interest rate by 2 percentage points, but also raises the expected rate of return on investment by 1 percentage point, how much investment, if any, will be crowded out?
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.
Refer to the accompanying table for Waxwania.
Government Expenditures, G
Tax Revenues, T
Real GDP
$190
100
$500
190
120
600
190
140
700
190
160
800
190
180
900
a. What is the marginal tax rate in Waxwania? ____percent --The average tax rate? _____percent b. Suppose Waxwania is producing $600 of real GDP, whereas the potential real GDP (or full-employment real GDP) is $700.-How large is its budget deficit? $____ -Its cyclically adjusted budget deficit? $____ -Its cyclically adjusted budget deficit as a percentage of potential real GDP?________ percent
Chapter 31 Solutions
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- 6. Explain how built-in (or automatic) stabilizers work. What are the differences between proportional, progressive, and regressive tax systems as they relate to an economy's built-in stability? In a phrase, “net tax revenues vary directly with GDP." When GDP is rising so are tax collections, both income taxes and sales taxes. At the same time, government payouts-transfer payments such as unemployment compensation, and welfare-are ( increasing, decreasing). Since net taxes are taxes less transfer payments, net taxes definitely (rise, fall) with GDP, which dampens the rise in GDP. (Note: Net Taxes = Taxes – Transfer Payments) On the other hand, when GDP drops in a recession, tax collections slow down or actually diminish while transfer payments ( rise, fall ) quickly. Thus, net taxes ( increase, decrease ) along with GDP drops, which softens the decline in GDP. A ( progressive, proportional, regressive ) tax system would have the most stabilizing effect of the three tax systems and the…arrow_forwardConsider an economy that has the following GDP and price levels if there was no fiscal policy: Year 1 2 3 Potential real GDP $18 trillion $18.2 trillion $18.7 trillion Actual real GDP $18 trillion $18.3 trillion $18.5 trillion Price level 175 182 187 What should the government do if it wants the real GDP at its potential level in year 1 and there were no fiscal policy lags? Choose one: O A. recommend an expansionary fiscal policy B. recommend a contractionary fiscal policy O C. no change is necessary See Hintarrow_forwardWhich of the following is correct? 1) Expansionary fiscal policy during a recession means cutting taxes, increasing government spending, or taking both actions. 2) The goal of expansionary fiscal policy is to rein in inflation. 3) Expansionary fiscal policy tends to lead to a smaller budget deficit. O 4) Expansionary fiscal policy is always better than contractionary fiscal policy for 4) the economy.arrow_forward
- 3. Suppose an economy is represented by the following equations. Consumption function C= 200 + 0.8Yd Planned investment I= 400 Government spending G= 600 Exports EX= 200 Imports IM = 0.1Yd Autonomous Taxes T= 500 Marginal Tax Rate t=0.2 Planned aggregate expenditure AE = C+I+G+ (EX - IM) By using the above information calculate the equilibrium level of income for this economy and explain why fiscal policy becomes less effective in an open economyarrow_forward3)Show and explain how an expansionary fiscal policy can cause crowding-out effect by using aggregateexpenditure and aggregate output curves.2)What action could the TCMB take to reduce the crowding-out effect of an expansionary fiscal policy?1)By using graphs, show and explain the effects of an expansionary fiscal policy on the goods market by taking thelink between two markets into accountarrow_forwardSuppose that the MPC is 0,80 and there is an AD excess of $1,200 million. Which of the following is an appropriate desired fiscal restraint? O $240 million decrease in government spending. $1.200 million decrease in government spending. O S1,500 million decrease in government spending. $960 million decrease in government spending.arrow_forward
- Question 40 How is the effect of expansionary fiscal policy depicted in an aggregate supply-aggregate demand graph? O The aggregate supply curve shifts rightward. O The aggregate demand curve shifts rightward. O The equilibrium level of income increases, but neither curve shifts. O The aggregate supply curve shifts leftward.arrow_forwardSuppose full employment output equals $25 trillion and actual output equals $14 trillion. If crowding out is not an issue and the MPC equals 0.80, then government spending of ..........will close the output gap. O $2.2 trillion $55 trillion $13.75 trillion $8.8 trillion.arrow_forwardAssume the government makes no fiscal policy changes when the economy experiences a downturn. Which outcome would be expected? O Government expenditure to be higher and tax revenues to be lower, probably leading to a budget deficit. Government expenditure to be lower and tax revenues to be lower, probably leading to a budget surplus. O Government expenditure to be higher and tax revenues to remain the same, probably leading to a budget deficit. Government expenditure to be higher and tax revenues to be lower, probably leading to a budget surplus. O Government expenditure to remain the same and tax revenues to be lower, probably leading to a budget deficit.arrow_forward
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