Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 33, Problem 5DQ
To determine
Automatic stabilizer work.
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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?
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3)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 account
Suppose the government's present value of current and projected future outlays is 75 percent of GDP and its present value of current and projected future revenues is 50 percent of GDP. What gap does this describe, and what is the size of the gap?
This information describes the _______.
A.
fiscal gap, which is 25 percent of GDP
B.
generational gap, which is 25 percent of GDP
C.
fiscal gap, which is 125 percent of GDP
D.
fiscal gap, which is
–
25
percent of GDP
Chapter 33 Solutions
Economics (Irwin Economics)
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- #wk4-10 Suppose that the investment demand curve in a certain economy is such that investment declines by $120 billion for every 1 percentage point increase in the real interest rate. Also, suppose that the investment demand curve shifts rightward by $170 billion at each real interest rate for every 1 percentage point increase in the expected rate of return from investment.If stimulus spending (an expansionary fiscal policy) by government increases the real interest rate by 2 percentage points, but also raises the expected rate of return on investment by 1 percentage point, how much investment, if any, will be crowded out?$ billionarrow_forwardExplain how automatic stabilizers work, both on the taxation side and on the spending side, first in a situation where the economy is producing less than potential GDP and then in a situation where the economy Is producing more than potential GDP.arrow_forwardQ No.3 What we mean by Economic dues in case of Fiscal Policy in Islamic Economy? Discuss the function of Economic dues in the context of Zakah as a non-discretionary fiscal policy tool of Islamic Economy.arrow_forward
- 1. If the marginal propensity to consume is 0.8 in an economy, a $20 billion rise in Incomes will do what to GDP? (Tell if it will increase or decrease GDP, and by how much.) 2. Suppose that the level of government spending increased by $100 billion where the marginal propensity to consume is 0.5. Aggregate expenditures must have increased by: 3. The Government has a $.8 Trillion Growth target. What fiscal policy should they implement if MPS = .2?arrow_forwardNow suppose that the gross national debt initially is equal to $2.5 trillion and the federal government then runs a deficit of $100 billion. What is the new level of gross national debt? If 100 percent of this deficit is financed by the sale of securities to the public, what happens to the level of debt held by the public? What happens to the level of gross debt? 3. If GDP increases by 6 percent in the same year as the deficit is run, what happens to the gross debt as a percentage of GDP? What happens to the level of debt held by the public as a percentage of GDP?arrow_forward15. If consumers in a country spend 3/4 of their disposable income. If their government increases its spending by 75 trillion and in order to maintain a balanced budget simultaneously increases taxes by 75 trillion. Calculate the effect of the 75 trillion change in government spending and 75 trillion change in taxes on the country’s aggregate demand. 16. If consumers in a country spend 4/5 of their disposable income. If their government decreases its spending by 55 trillion and in order to maintain a balanced budget simultaneously decreases taxes by 55 trillion. Calculate the effect of the 55 trillion change in government spending and 55 trillion change in taxes on the country’s aggregate demand. please make sure calculate the answer accuratelyarrow_forward
- Q.1.5 Which one of the following statements regarding fiscal policy and the budget is correct?(a) When the government plans to stimulate economic activity, it can increase spending or reduce taxes;(b) Revenue from tax is always greater than government spending in SouthAfrica;(c) Demand management only refers to fiscal policy;(d) A contractionary fiscal policy should be implemented to combatunemployment.arrow_forward13. Suppose that two countries differ on in the size of their MPC, where the MPC is high in country A and low in country B. Draw IS/LM and AD/AS curves for each country. In which country will monetary policy be most effective at changing income? Fiscal policy?arrow_forward1. Consider an economy with the initial equilibrium income level of $1000 and the consumption function of C = $150 + 0.6 (Y - T). Find the following quantities:a. Government expenditures at the equilibrium level of income if T = $160 and I = $100.b. The change in income produced by increasing taxes 10%, provided that G and I remain unchanged. What is the tax multiplier?c. The change in income produced by increasing government expenditures 10%, provided that T and I remain unchanged. What is the government spending multiplier?d. Based on your answers to (b) and (c), does the balanced budget multiplier theorem hold?arrow_forward
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