Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 36.5, Problem 3QQ
To determine
Impact of tax cut.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
The government decreases current taxes, while holding government spending in the present and the future constant.
Using diagrams, determine the equilibrium effects on consumption, investment, the real interest rate, aggregate output, employment, and the real wage. What is the multiplier, and how does it differ from the government expenditure multiplier?
Now suppose that there are credit market imperfections in the market for consumer credit, for example due to asymmetric information in the credit market. Repeat part (a), and explain any differences in your answers in parts (a) and (b)
There is an increase in government expenditures financed by taxes and its overall short-run effect on output is larger than the change in government spending. Which of the following is correct?
A) By themselves, both the change in the output and the change in the interest rate decrease desired investment.
B) By themselves, both the change in output and the change in the interest rate increase desired investment.
C) By itself, the change in the output decreases desired investment spending and by itself the change in the interest rate increases desired investment spending.
D) BY itself, the change in output increases desired investment spending and by itself the change in the interest rate decreases desired investment spending.
The government can use _____________ in the form of ____________________ to increase the level of aggregate demand in the economy.
A.) expansionary fiscal policy; an increase in corporate taxes
B.) contractionary fiscal policy; a reduction in taxes
C.) contractionary fiscal policy; an increase in taxes
D.) expansionary fiscal policy; an increase in government spending
Chapter 36 Solutions
Economics (Irwin Economics)
Ch. 36.1 - Prob. 1QQCh. 36.1 - Prob. 2QQCh. 36.1 - Prob. 3QQCh. 36.1 - Prob. 4QQCh. 36.4 - Prob. 1QQCh. 36.4 - Prob. 2QQCh. 36.4 - Prob. 3QQCh. 36.4 - Prob. 4QQCh. 36.5 - Prob. 1QQCh. 36.5 - Prob. 2QQ
Ch. 36.5 - Prob. 3QQCh. 36.5 - Prob. 4QQCh. 36 - Prob. 1DQCh. 36 - Prob. 2DQCh. 36 - Prob. 3DQCh. 36 - Prob. 4DQCh. 36 - Prob. 5DQCh. 36 - Prob. 6DQCh. 36 - Prob. 7DQCh. 36 - Prob. 8DQCh. 36 - Prob. 1RQCh. 36 - Prob. 2RQCh. 36 - Prob. 3RQCh. 36 - Prob. 4RQCh. 36 - Prob. 5RQCh. 36 - Prob. 6RQCh. 36 - Prob. 7RQCh. 36 - Prob. 8RQCh. 36 - Prob. 9RQCh. 36 - Prob. 1PCh. 36 - Prob. 2PCh. 36 - Prob. 3PCh. 36 - Prob. 4PCh. 36 - Prob. 5PCh. 36 - Prob. 6PCh. 36 - Prob. 7P
Knowledge Booster
Similar questions
- Mexico's real GDP fell from 4.5 trillion pesos to 3.8 trillion pesos over the first part of 2020. In that same time, its consumer spending fell from 3.1 trillion pesos to 2.5 trillion pesos. Assume that real GDP represents disposable income. Using these values, what is the size of the tax cut multiplier? (Round answers to one decimal place.arrow_forwardIf a wealthy person writes a check to purchase a new car, he is employing money as _______. a. a measure of exchange. b. a store of value. c. a measure of value. The tax multiplier is: a. -0.8 b. -1.25 c. -5 d. -4 If current real GDP is P700 billion, which of the following policies would bring the economy to potential output? a. decrease taxes by P100 billion b. increase taxes by P100 billion c. decrease taxes by P25 billion d. increase taxes by P25 billion * the attached photo is connected to the questions *arrow_forwardAssume 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 abovearrow_forward
- Assume an economy in which:(i) there are no exports and no imports,(ii) investors always want to spend $200 billion, or I = 200,(iii) government spends $500 billion and tax revenue is $200 billion,(iv) consumption is a linear function of disposable income, C=100+0.8Yd Assume instead that the government wishes to maintain taxes at $200 billion(T=200), but wants to achieve an equilibrium level of national income of $4200 billion(Y=4200) by increasing government spending. To achieve this result, by how much mustgovernment spending increase?arrow_forwardThe classification of government spending as an investment or having an investment-effect depends on: a. How the spending affects current consumption. b. How the spending affects future productivity. c. How the spending affects current stock prices. d. How the spending affects future stock prices.arrow_forwardIn which of the following circumstances is expansionary fiscal p In which of the following circumstances is expansionary fiscal policy more likely to lead to a short-run increase in investment? Explain.a. When the investment accelerator is large or when it is small?b. When the interest sensitivity of investment is large or when it is small?arrow_forward
- Is is possible for federal investment to have a negative rate of return? Yes, if the spending results in a strong crowding-out effect or if state and local governments substitute towards federal investment by reducing stateand local investment. Either would potentially reduce future productivity and output (GDP), resulting in a negative return. Yes, if the spending results in a weak crowding-out effect or if state and local investments complement the increase in federal investment by. Either would potentially reduce future productivity and output (GDP) and hence result in a negative return. No. At worst, federal investment can have no future return as the expenditure offered some form of service (ex. jobs training) or useful infrastructure (ex. highways). No. If in the future there were a negative return, the federal government would increase expenditures again to offset it.arrow_forwardCould you do C and D A country has an initial real output of $162 Billion. What would the final output be expected to be if:a. The government spends $15 billion on infrastructure and the MPC of the country is 0.35b. The government reduces taxes by $3.5 billion and the MPW of the country is 0.75c. The government makes no changes to taxes or spending.d. The government decreases spending nationwide by $9 billion in a country where people are likely to withdraw 60 cents on every new dollar of income.arrow_forward2. The government decreases current taxes, while holding government spending in the present and the future constant. (a) Using diagrams, determine the equilibrium effects on consumption, investment, the real interest rate, aggregate output, employment, and the real wage. What is the multiplier, and how does it differ from the government expenditure multiplier? (b) Now suppose that there are credit market imperfections in the market for consumer credit, for example due to asymmetric information in the credit market. Repeat part (a) and explain any differences in your answers in parts (a) and (b). 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_forward
- Assume an economy with no foreign sector, a marginal propensity to save of mps = 0.1, and a marginal income tax rate of t = 1/3. What change in government purchases would lead to an increase in national income of 500?arrow_forwardMexico's real GDP fell from 4.5 trillion pesos to 3.8 trillion pesos over the first part of 2020. In that same time, its consumer spending fell from 3.1 trillion pesos to 2.5 trillion pesos. Assume that real GDP represents disposable income. Using these values, what is the size of the government spending multiplier?arrow_forward20. . If US economy moves into an expansion while producing more than potential GDP, then: a) government spending and tax revenue will increase because of automatic stabilizers. b) government spending and tax revenue will decrease because of automatic stabilizers. c) automatic stabilizers will increase government spending and decrease tax revenue. d) automatic stabilizers will decrease government spending and increase tax revenue.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Survey of Economics (MindTap Course List)EconomicsISBN:9781305260948Author:Irvin B. TuckerPublisher:Cengage Learning
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Survey of Economics (MindTap Course List)
Economics
ISBN:9781305260948
Author:Irvin B. Tucker
Publisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc