3 The tax cuts of 2017 increased the 2018 disposable income of households by roughly $200 billion. If the MPC were 0.9,Instructions: Enter your responses as a whole number.a. how much of this windfall was initially saved?%24180 O billionb. how much AD stimulus resulted over time after all multiplier effects?$ 2000billion

The marginal propensity to save (MPS) is the percentage of a household's additional income that is…

Answered: The tax cuts of 2017 increased the 2018…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that due ot a fiscal stimulus, there is an increase in disposable incomes of $100 billion in the first round. Then, $33 billion was spent in consumption from this initial change of the disposable incomes. Following the same marginal propensity to consume, how much is the change in consumption spending in the next round from the $33 billion?
(a) Suppose in a simple Keynesian economy, planned consumption function is given by C=250+0.65(Y-T). Planned investment, government purchases, taxes are $100 million, $100 million and $150 million respectively. What is MPC, MPS and autonomous consumption Derive the saving function. What is the equilibrium level of income? Y= AD=C+I+G If government purchases increase to $150 million, what is the new equilibrium level of income? What level of government purchases is needed to achieve an income of $2000 million? From question e) you get the newly government purchase. Now find out the multiplier value What is the amount of shift in AD curve? [Use the multiplier value from e)] (b) In a self-regulating economy “X”, labor supply is 40 million but labor demand is 10 million. What will happen in goods and service market simultaneously? Explain this situation with relevant graph. Based on your findings in a) is it denoting long run equilibrium? If not, will the economy be able to restore…
2. In a closed economy with no government, a $1 billion increase in initial spending leads to a $5 billion increase in total income or output. a. What is the multiplier? b.What is the value of marginal propensity to save? c.What is the value marginal propensity to consume?
In the economy of Spendsalot, the marginal propensity to save, MPS, is 0.8. What is the marginal propensity to consume, MPC, for Spendsalot? Which value does MPC determine? a.the slope of tax revenues as a function of GDP b.the slope of pre‑tax consumption as a function of GDP c.the slope of pre‑tax investment as a function of GDP d.the slope of government consumption as a function of GDP.
1. According to the Bureau of Economic Analysis, during therecession of 2007–2009, household saving as a fraction of dis-posable personal income increased from a low of just over1 percent in the first quarter of 2008 to 5 percent in the secondquarter of 2009. All else equal, what impact would this changein saving have on the MPC, MPS, and multiplier? How wouldthis change affect equilibrium output when planned invest-ment changes? 2. Assume in a simple economy that the level of saving is –500 whenaggregate output equals zero and that the marginal propensity tosave is 0.2. Derive the saving function and the consumption func-tion, and draw a graph showing these functions. At what level ofaggregate output does the consumption curve cross the 45° line?Explain your answer and show this on the graph.
11. Assuming a Marginal Propensity to Save (MPS) of 20% or 0.20, use the Keynesian Multiplier to determine the additional amount of government spending required.
In order to financially stimulate the nation, the Federal government injected $900 billion dollars into the economy. However, the results were less than spectacular. One reason could have been a failure to understand the marginal propensity to consume. Assume the marginal propensity to consume (MPC) was only 0.4. How much of that $900 billion went to increased consumption? Where did the rest of the money go? Increased consumption: Where did the rest go? Using MPC = 0.4, what is the spending multiplier (the actual numerical value please): What was the overall change in income as a result of the stimulus package after the multiplier completely works its way through the economy?
If Multiplier is 1/1-MPC and MPS+MPC=1, MPC= Marginal propensity to consume and MPS= marginal propensity to save. Using this formula and MPC is 0.9 multiplier is __________ and if MPS =0.4 multiplier is ________________ a 10 and 10 b 1 and 2.5 c 10 and 2.5 d 1.111 and 1.666
10 If Ricardian equivalence holds, and the marginal propensity to consume (MPC) is 0.75, What is the effect of a $100 reduction in taxes on aggregate demand (AD) ?
4. A country’s consumer spending is defined by the following equation:Consumer spending = 365 + 0.75 (Disposable Income)a. Draw a diagram to represent this equation. b. Assuming no government, what will the Marginal Propensity to Save (MPS) in this country.c. What will be Consumer spending if disposable income in this country is 1000? d. If suddenly this country’s wealth increases, how do you think the equation might change.Also show it in a diagram.
Q) For this question, assume the marginal propensity to consume is 0.7. a. Calculate the change in private saving, public saving, national saving, and investment when taxes increase $100. b. Calculate the change in private saving, public saving, national saving, and investment when government purchases decrease $100. c. Which causes a larger change in investment, the increase in taxes in part a or the decrease in government purchases in part b? Support your answer. Explain it correctly and all subparts.
Suppose taxes increase in the current period and there is no change to current or future governmentexpenditures. What does Ricardian equivalence predict will be the impact on consumption decisions? (a) Decrease in current consumption and a decrease in saving(b) Decrease in future consumption and an increase in future consumption(c) No change in current consumption and a decrease in future consumption(d) No change in consumption and a decrease in saving.

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