MindTap Economics, 1 Term (6 Months) Printed Access Card for Mceachern's ECON MACRO, 6th
6th Edition
ISBN: 9781337915595
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 9, Problem 11P
To determine
Amount by which government will have to increase its spending to achieve an increase in real GDP demanded from $14 trillion to $15 trillion.
Introduction: The simple spending multiplier indicates how much the total spending increases, given a change in income. The spending multiplier is determined by the following equation:
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Suppose that the MPC is 0.8 and that $18 trillion of real GDP is currently being demanded. The government wants to increase real GDP demanded to $19 trillion at the given price level. By how much would it have to increase government purchases to achieve this goal?
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Suppose actual real GDP is $13.56 trillion, potential real GDP is $12.34 trillion, and the marginal propensity to consume is 0.74. If we ignore price effects, and if the government already decided to increase its spending by $1.90 trillion, by how many trillions of dollars should the government change its lump sum taxes to fix the gap? (Round this to two digits after the decimal and enter this value as either a positive value or a negative value without the dollar sign.)
Chapter 9 Solutions
MindTap Economics, 1 Term (6 Months) Printed Access Card for Mceachern's ECON MACRO, 6th
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- Question 9arrow_forwardSuppose actual real GDP is $7.54 trillion, potential real GDP is $12.32 trillion, and the marginal propensity to consume is 0.62. If we ignore price effects, by how many trillions of dollars should the government change its spending to fix the gap? (Round this to two digits after the decimal and enter this value as either a positive value or a negative value without the dollar sign.)arrow_forwardWhy will a temporary tax increase be insignificant in reducing consumption expenditures by the amount expectedarrow_forward
- Assume that government purchases decrease by $10 billion, with other factors held constant, including the price level. Calculate the change in the level of the real GDP demanded for each of the following values of the MPC. Then, calculate the change if the government, instead if reducing its purchases, increased autonomous net taxes by $10 billion. a. 0.9 b. 0.8 c. 0.75 d. 0.6arrow_forwardThere is an inflationary gap of $200 billion in the economy. The MPC is 90%. What is the MPS [Select] and the Government Spending Multiplier [Select] the Government need to [Select] much [Select] change taxes, would they [Select] the Tax multiplier [Select] [Select] ? Would spending? By how ? If the Government decided to taxes? What is and by how mucharrow_forwardWhat is the effect on savings of a tax cut of $15 billion? Is this inflationary or deflationary? Assume that the MPC is 0.9.arrow_forward
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