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 37, Problem 8DQ
To determine
Active discretionary fiscal policy.
Expert Solution & Answer
![Check Mark](/static/check-mark.png)
Want to see the full answer?
Check out a sample textbook solution![Blurred answer](/static/blurred-answer.jpg)
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
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.
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.
Chapter 37 Solutions
EP ECONOMICS,AP EDITION-CONNECT ACCESS
Knowledge Booster
Similar questions
- Suppose 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_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_forwardIf 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_forward
- Question 16 The country of Opulencia loves to live large, but has a major debt problem. It has a national debt of $800 billion, $400 billion in intergovernmental borrowing, $160 billion in bonds held by domestic citizens, and $240 billion in bonds held by foreign citizens. Opulencia's public debt is equal to: O $400 billion O $640 billion O $960 billion O $1,200 billionarrow_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_forward2./The accompanying diagram shows the current mac- roeconomic situation for the economy of Brittania; real GDP is Y, and the aggregate price level is P. You have been hired as an economic consultant to help the economy move to potential output, Yp Aggregate price level LRAS SRAS P1 E1 AD Potential Yp Y, output Real GDP a. Is Brittania facing a recessionary or inflationary gap? b. Which type of fiscal policy-expansionary or contractionary-would move the economy of Brittania to potential output, Yp? What are some examples of such policies? c. Illustrate the macroeconomic situation in Brittania with a diagram after the successful fiscal policy has been implemented.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_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_forwardAsap both 1.a) Which of the following statements is correct?l.Expansionary fiscal policy is used to remove a recessionary gap.ll. Expansionary fiscal policy is used to shift AD right.A) l onlyB) I onlyC)both I and ID) neither I nor ll 1.b) Which of the following are examples of contractionary fiscal policy?A) decreasing government expendituresB) increasing taxesC) increasing transfer paymentsD) A and B are both contractionary fiscal policiesE) A, B, and C are all contractionary fiscal policiesarrow_forward
- Consider the following data about government debt and deficit in a given year - real interest rate on government bonds = 1% -growth rate of real GDP = 1% - current debt-to-GDP ratio = 25% - primary budget deficit as a percentage of GDP = 2% Over this one-year period the debt-to-GDP ratio will have O A. risen by 0.2 percentage points. OB. remained unchanged. OC. risen by 2 percentage points. OD. fallen by 2 percentage points. O E. fallen by 0.2 percentage points.arrow_forward#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_forward1. You are appointed secretary of the treasury of a recendly inde- pendent country called Rugaria. The currency of Rugaria is the lav. The new nation began fiscal operations this year, and the budget situation is that the government will spend 10 million Javs and taxes will be 9 million lavs. The 1-million-lav difference will be borrowed from the public by selling 10-year government bonds paying 5 percent interest. The interest on the outstand- ing bonds must be added to spending each year, and we assume that additional taxes are raised to cover that interest. Assuming that the budget stays the same except for the interest on the debt for 10 years, what will be the accumulated debt? What will the size of the budget be after 10 years?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:OpenStaxBrief Principles of Macroeconomics (MindTap Cours...EconomicsISBN:9781337091985Author:N. Gregory MankiwPublisher:Cengage Learning
- Principles of Macroeconomics (MindTap Course List)EconomicsISBN:9781285165912Author:N. Gregory MankiwPublisher:Cengage LearningPrinciples of Macroeconomics (MindTap Course List)EconomicsISBN:9781305971509Author:N. Gregory MankiwPublisher:Cengage LearningPrinciples of Economics, 7th Edition (MindTap Cou...EconomicsISBN:9781285165875Author:N. Gregory MankiwPublisher:Cengage Learning
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337000529/9781337000529_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781947172364/9781947172364_smallCoverImage.jpg)
Principles of Economics 2e
Economics
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:OpenStax
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337091985/9781337091985_smallCoverImage.gif)
Brief Principles of Macroeconomics (MindTap Cours...
Economics
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:Cengage Learning
![Text book image](https://www.bartleby.com/isbn_cover_images/9781285165912/9781285165912_smallCoverImage.gif)
Principles of Macroeconomics (MindTap Course List)
Economics
ISBN:9781285165912
Author:N. Gregory Mankiw
Publisher:Cengage Learning
![Text book image](https://www.bartleby.com/isbn_cover_images/9781305971509/9781305971509_smallCoverImage.gif)
Principles of Macroeconomics (MindTap Course List)
Economics
ISBN:9781305971509
Author:N. Gregory Mankiw
Publisher:Cengage Learning
![Text book image](https://www.bartleby.com/isbn_cover_images/9781285165875/9781285165875_smallCoverImage.gif)
Principles of Economics, 7th Edition (MindTap Cou...
Economics
ISBN:9781285165875
Author:N. Gregory Mankiw
Publisher:Cengage Learning