C = 0.8(DI) + 1000
C = Consumption expenditure, DI = Disposable Income
I = 5000
I = Investment expenditure
G = 3000
G = government expenditure
X = 2000
X = spending on exports
M = 1800
M = spending on imports
DI = Y - T
Y = real GDP, T = tax revenues/>
T = 3000
Which of the following increases equilibrium real GDP by $2000
Note: you should use the expenditure multipliers from class to get your answer.
a.
increase in government expenditure (G) by $2000 and pay for it by raising taxes (T) by $2000
b.
increase government expenditure (G) by $2000 and pay for it by borrowing money
c.
increase taxes (T) by $2000
d.
decrease taxes (T) by $2000
e.
all of the above
f.
none of the above
| C = 0.8(DI) + 1000 | C = Consumption expenditure, DI = Disposable Income |
| I = 5000 | I = Investment expenditure |
| G = 3000 | G = government expenditure |
| X = 2000 | X = spending on exports |
| M = 1800 | M = spending on imports |
| DI = Y - T | Y = real GDP, T = tax revenues/> |
| T = 3000 |
Which of the following increases equilibrium real GDP by $2000
Note: you should use the expenditure multipliers from class to get your answer.
| a. |
increase in government expenditure (G) by $2000 and pay for it by raising taxes (T) by $2000 |
|
| b. |
increase government expenditure (G) by $2000 and pay for it by borrowing money |
|
| c. |
increase taxes (T) by $2000 |
|
| d. |
decrease taxes (T) by $2000 |
|
| e. |
all of the above |
|
| f. |
none of the above |
Related textbook solutions
Related questions
Assume that the equations below describe the expenditures within a particular macroeconomy and that these equations conform to the assumptions we've made in the lecture regarding the fixed price level Aggregate Expenditure model. All values for expenditure and income are dollar amounts, but for simplicity, we've dropped the $ below.
| C = 0.8(DI) + 1000 | C = Consumption expenditure, DI = Disposable Income |
| I = 2000 | I = Investment expenditure |
| G = 1000 | G = government expenditure |
| X = 1600 | X = spending on exports |
| M = 1800 | M = spending on imports |
| DI = Y - T | Y = real GDP, T = tax revenues/> |
| T = 1000 | |
| Yp = 12000 | Yp = Potential GDP |
Given the equations above, we can describe the GDP, government budget, and net exports in this economy. Select three characteristics from the list below which accurately describe this economy. Note that there is no partial credit on this question. I.e., your answer will either be all correct, or all wrong.
| a. |
inflationary gap |
|
| b. |
recessionary gap |
|
| c. |
no output gap |
|
| d. |
government budget surplus |
|
| e. |
government budget deficit |
|
| f. |
balanced government budget |
|
| g. |
trade deficit |
|
| h. |
trade surplus |
|
| i. |
net exports of zero |
Data for 9-4 Homework: Problem Set
| GDP | Taxes | DI | C | I | G | C+I+G |
| 1250 | 200 | 800 | 300 | 200 | ||
| 1500 | 200 | 1000 | 300 | 200 | ||
| 1750 | 200 | 1200 | 300 | 200 | ||
| 2000 | 200 | 1400 | 300 | 200 | ||
| 2250 | 200 | 1600 | 300 | 200 | ||
| 2500 | 200 | 1800 | 300 | 200 | ||
| 2750 | 200 | 2000 | 300 | 200 |
This table represents several different potential output scenarios for a hypothetical economy. Based on the information presented, complete the following:
1. Calculate the Disposable Income (DI) at each level of GDP.
2. Calculate total spending (C+I+G) at each level of GDP.
3. What is the equilibrium level of GDP in the economy?
4. When the economy is at equilibrium, what is the level of saving?
5. What is the value of the MPC?
6. What is the value of the expenditure multiplier?
7. What is the value of the tax multiplier?
8. If the government increases spending by $100, what would be the new equilibrium value of GDP?
9. If the government wanted to achieve the same change in GDP as in part 8 by cutting taxes instead of increasing spending, how large would the tax cut need to be?
