Explain how an increase in government spending (or, equivalently, a cut in taxes) is unlikely to lead to any increase in output neither in the short nor in the long run
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Explain how an increase in government spending (or, equivalently, a cut in taxes) is unlikely to lead to any increase in output neither in the short nor in the long run
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- Logically discuss the impact of the increase in governmenttaxes on consumption in the long run.What effect an increase of government spending will have on the output equilibrium in the goods market? Explain using autonomous spending. please explainLogically discuss the impact of the increase in government taxes on consumption.
- Consider a closed economy where the goods and money markets are described by the following relationships: C = 500+ 0.8(Y-T) I= 500-10r - M P = = 0.1Y - 35r G = 800 T = 200 M = 1000 P = 2 Where C is planned consumption, / is planned investment spending, T is government tax revenues, G is government purchases, M is the money supply, P is the price level and r is the interest rate. b) Calculate the equilibrium value of output Y and interest rate r (round off your answers to one decimal point). Compute also the level of consumption and investment spending in equilibrium and check whether the actual level of spending matches the equilibrium level of output. d) If the Central Bank intends to pursue monetary policy in order to restore output to the same level before the fall in consumer confidence, how much should money supply change by? Use graphs to show the change in the economy and explain very carefully the monetary transmission mechanism e) Suppose that, instead of relying on monetary…On average, does an increase in taxes raise or lower real GDP? If taxes as a percent of GDP go up 1 percent, by how much does real GDP change? Are the decreases in real GDP caused by tax increases temporary or permanent? Does the intention of a tax increase matter?Suppose the following list of events describes all of the economic activity resulting from an increase in government spending. Suppose that at each step after the initial one, the marginal propensity to consume is 0.62 and the tax rate is 8%. Step 0. The government spends $8500 on meat to host a very large dinner for foreign diplomats. Step A. The butcher takes the income earned by selling the meat, saves some, and spends the rest on a wedding cake for his daughter. Step B. The baker who produced the wedding cake saves some of her earnings and uses the rest to purchase beautiful candlesticks as gifts for all of her friends. Step C. The local candlestick maker saves some of his revenue for retirement and spends the rest on building materials to improve his house. Instructions: Modify the settings in the interactive tool to represent this event. Then click "Spending Rounds" and use the table to answer the following questions. Round answers to the nearest cent, if necessary. How much does…
- Suppose the following list of events describes all of the economic activity resulting from an increase in government spending. Suppose that at each step after the initial one, the marginal propensity to consume is 0.67 and the tax rate is 16%. Step 0. The government spends $8500 on meat to host a very large dinner for foreign diplomats. Step A. The butcher takes the income earned by selling the meat, saves some, and spends the rest on a wedding cake for his daughter. Step B. The baker who produced the wedding cake saves some of her earnings and uses the rest to purchase beautiful candlesticks as gifts for all of her friends. Step C. The local candlestick maker saves some of his revenue for retirement and spends the rest on building materials to improve his house. Instructions: Modify the settings in the interactive tool to represent this event. Then click "Spending Rounds" and use the table to answer the following questions. Round answers to the nearest cent, if necessary. How much…President Biden proposed increasing the corporate tax rate from 21% to 28%. However, this reform has been hard to pass in the Senate. Imagine he asks you to predict revenue changes as a result of a lower increase in the corporate tax (from 21% to 24%). What kind of basic information would you need to make such predictions?An economy has the following characteristics: Y = National income Taxes = T = 0.25Y C = Consumption = 400+ 0.85(Y – T) 1 = 300 G = 200 (Exports) X = 500 (Imports) M = 0.1(Y – T) Find the equilibrium for this economy. If potential GDP is 3,500, then what change in government spending is needed to achieve this level? Do this problem two ways. Either plug 3,500 into the equations and solve for G, or calculate the multiplier and figure it out that way.
- Trace the implications of a government budget surplus on the following: National saving Interest rates Private investment Economic growth Future living standards When tracing the effects of the budget surplus, list the assumptions you are making.Suppose the US Federal Government decides to increase its spending without issuing debt by raising additional taxes (i.e., tax-financed government spending). Create a graph that depicts the short-run and long-run effects of tax-financed government spending.If the government wants to increase real GDP levels, it could A) decrease government expenditures and increase taxes. B) increase government expenditures. C) decrease government expenditures. D) increase taxes.
