Log in
Economics
1
answer
0
watching
74
views

Suppose that in an economy MPC is estimated to be 0.80

Congress has decided that 90 percent of an increase in a specific government expenditure initiative (G) must be covered by an increase in taxes (T). Both G and T are independent of income.

For this economy, the net value of the government spending multiplier is?

Watch
1
answer
0
watching
74
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related textbook solutions

Principles of Economics
2nd Edition, 2017
Openstax
ISBN: 9781947172364
Principles of Macroeconomics
2 Edition,
Openstax
ISBN: 9781947172388
Principles of Microeconomics
2 Edition,
Openstax
ISBN: 9781947172340

Related questions

Economics

Unit 9: Keynesian Economics - Multipliers

Name _______________________________________________________

Answer the following problems. Show ALL work for every problem.

Keep in mind the equations you learned:

Change in G x SM = Change in AE

Also recall that if you know how much AE must change by AND you know the SM, you can solve for how much G must change by.

1. MPC = .9 AE must increase by $350 billion to reach the full employment level of RGDP. Solve for the change in Government spending required to accomplish this. 2. MPC = .9 AE must decrease by $250 billion to eliminate an inflationary gap. Solve for the change in Government spending required to accomplish this. 3. MPS = .15 AE must increase by $700 million to eliminate a recessionary gap. Solve for the change in Government spending required to accomplish this. 4. MPC = .8 Government spending increases by $500 million. How much does AE increase by? 5. A recessionary gap of $18 billion exists. The SM = 4. How much must Government Spending increase by? 6. An inflationary gap exists of $20 billion. The SM = 4. How much must Government Spending DECREASE by? 7. The MPC is .75. AE must increase by $100 million. How much must Government Spending increase by?

Instead of increasing Government Spending, Congress has chosen to decrease tax rates. Use the tax multiplier (TM) to solve the following.

Change in Taxes x TM = Change in AE

8. The MPC is .75. AE must increase by $100 million. How much should the tax decrease be?

9. The MPS is .1. AE must decrease by $80 million to reduce inflation. How much should the tax INCREASE be?

10. Suppose the government wishes to eliminate an inflationary gap of $100 billion and the MPC is .60. How much must the government increase taxes by?

Suppose that the economy is characterized by the following behavioral equations: C = 160 + 0.6Yd I = 150 G = 150 T = 100
a. Solve for equilibrium output and consumption expenditure.
b. Assume that G is now equal to 110. Solve for equilibrium output.
c. The government is willing to consider an increase in public spending only if the multiplier is higher than 1.5. Base on your calculations will the government implement the increase in government spending?

Given the following information for the Macro Economy answer the following questions.

In this economy we have an MPC equal to 0.80, Autonomous Consumption of $600 billion, Planned Investment (I) of $1,000 billion, Government Spending (G) of $1,200 billion and Net Taxes (T) of $1,000 billion.

a) Fill in the missing data for: T, Yd, C, S, and AE (in that order in a table) for every level of Y given below (all the numbers are in billions).

Income (Y) Net Taxes (T) Disposable Income (Yd) Consumption (C) Savings (S) Aggregate Expenditures (AE)
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000

b) Determine the Equilibrium level of Aggregate Income (Ye). Please state the reason for your answer.

c) Calculate the Spending Multiplier (show how you got your answer).

Weekly leaderboard

Home
Homework Help 3,900,000
Economics 400,000
Start filling in the gaps now
Log in