EP ECONOMICS,AP EDITION-CONNECT ACCESS
20th Edition
ISBN: 9780021403455
Author: McConnell
Publisher: MCGRAW-HILL HIGHER EDUCATION
expand_more
expand_more
format_list_bulleted
Question
Chapter 31, Problem 5DQ
To determine
Automatic stabilizer work.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
9. True or false? If the statement is false, explain why: LO4
a. An internally held public debt is like a debt of the left hand owed to the right hand.
b. The Federal Reserve and federal government agencies hold more than half the public debt.
c. As a percentage of GDP, the federal debt held by the public was smaller in 2010 than it was in 1990.
d. As a percentage of GDP, the total U.S. public debt is the highest such debt among the world’s advanced industrial nations.
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
Which 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.
Chapter 31 Solutions
EP ECONOMICS,AP EDITION-CONNECT ACCESS
Knowledge Booster
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 $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.arrow_forwardQUESTION 16 If the marginal propensity to save is 0.1, the marginal propensity to import is 0.1 and the marginal tax rate is 0.2, how much would consumption increase if income rises by £8billion? O a. 4.8 O b. 13.3 O c. 3.2 O d. 20 4arrow_forwardSuppose that a family's income is exactly the same as the poverty threshold. This family's income deficit would be and their ratio of income to poverty would be O 0; 1 0 ; 0 1;0 O 1;1 Consider a family of four in 2008, whose poverty threshold is $22,024. If this family's total income was $12394, what would their income deficit be? income deficit: $arrow_forward
- If the government deficit/GDP ratio remains constant at 6% a year, the real GDP growth rate is 4% a year and the real interest rate is 1%, the public debt/GDP ratio will converge to the equilibrium level at O 210% O 305% O 208% O 368%arrow_forward13. Which fiscal policy would make a budget surplus larger or a budget deficit smaller? O lower taxes O increase in government purchases of goods and services O lower government transfers O higher interest ratesarrow_forward6. 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_forward
- Suppose George made $20,000 last year and that he lives in the country of Harmony. The way Harmony levies income taxes, all citizens must pay 10 percent in taxes on their first $10,000 in earnings and then 50 percent in taxes on anything else they might earn. Given that George earned $20,000 last year, his marginal tax rate on the last dollar he earns will be rate for his entire income will be and his average tax O 10 percent; 50 percent O 50 percent; less than 50 percent O 10 percent; less than 50 percent O 50 percent; 50 percentarrow_forwardIf the real interest rate on government bonds is three percent, real GDP grows at one percent, the current debt-to-GDP ratio is forty percent and the primary budget deficit as a percentage of GDP is two percent, then the debt-to-GDP ratio will rise in a year by. percentage points. O a. 0.28 O b. 0.82 O c. 2.8 O d. 8.2 O e. 82arrow_forwardSuppose that the debt-to-GDP ratio is 0.53, the real interest rate on the debt is 6%, and the growth rate of real GDP is 3%. What is the maximum primary deficit or surplus (as a percentage of GDP) that the government can run and not increase the debt-to-GDP ratio? O A. 1.59% surplus O B. 1.59% deficit OC. 3.18% surplus O D. 3.18% deficitarrow_forward
- Consider 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_forward5. LO 4 Suppose, as in the federal income tax code for the United States, that the representative con- sumer faces a wage income tax with a standard deduction. That is, the representative consumer pays no tax on wage income for the first x units of real wage income, and then pays a proportional taxt on each unit of real wage income greater than x Therefore, the consumer's budget constraint given by C wh -D + if wh- D=x., or C (1-wh-D+ tx+ if_wCh = D2 Now, suppose that the government reduces tax deduction x Using diagrams, determine the effects of this tax change on the consumer, and explain your results in terms of income and sub stitution effects. Make sure that you consider two cases. In the first case, the consumer does not pay any tax before x is reduced, and in the second case, the consumer pays a positive tax before x is reducedarrow_forwardWhich of the following statements is not true? A decrease in federal income tax rates is an example of fiscal policy that affects GDP through consumption adjustments. O Automatic stabilizers act to moderate business cycles primarily through the personal income and consumption channels. O Other things equal, the steeper the slope of the aggregate supply curve, the less effective will be the expansionary fiscal policy. When aggregate expenditure (AE) exceed Real GDP, inventory levels rise unexpectedly, which sends a signal to firms that they have overproduced, so they cut back on production.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics 2eEconomicsISBN:9781947172364Author:Steven A. Greenlaw; David ShapiroPublisher:OpenStax
Principles of Economics 2e
Economics
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:OpenStax