If the multiplier is 5 and government expenditures increase by $200 billic OA) AD shifts left by $1000 billion B) AD shifts right by $1000 billion O C) AD shifts left by $40 billion O D) AD shifts right by $40 billion E) SAS shifts right by $1000 billion
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Q: YAS = 742 + 15P – 28Poil YAD - 478 – 45P + 18G Suppose initially, the Poil = $93 per barrel and…
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- Explain the difference between the government purchases multiplier and the net tax multiplier. If the MPC falls, what happens to the tax multiplier?Fiscal policy creates a multiplier effect because O The government always runs a deficit Government spending and tax changes will generate even more government spending O Government spending and tax changes will cause other economies to do the same thing. Government spending and tax changes will generate additional changes in consumer spending, creating more jobs, production and even more ripples of additional spendinga) What are the three fiscal policy tools and how would each be used to counter a contractionary gap? b) True or False and explain: Fiscal Policy is effective at reducing the duration of an economic contraction. c) If the spending multiplier is 2.5 and the economy is in a $500 billion contractionary gap, how much should I increase government purchases to eliminate the gap? d) Continuing with c, if the MPC is 0.8, how much would I need to increase transfer payments to eliminate the $500 billion contractionary gap? e) True or False and explain: Households always react to tax changes in a predictable manner. Module 6: Deficits and the Debt. a) Distinguish between deficit and debt. b) Explain what crowding out is and why it reduces the impact of fiscal stimulus. c) True or false and explain: The national debt represents a threat of bankruptcy. (For d and e) Suppose the interest on the debt was $600 billion. If interest is paid domestically, 90% will be spent domestically (the remainder is…
- a) Suppose that there are no crowding-out effects and the MPC is 0.8. By how much must the government increase expenditures shift the aggregate-demand curve right $10 billion? b. The model of Long-run Growth, proposes that fiscal policy can have lasting effects on savings, investment, and economic growth. On the other hand, the model of Aggregate Demand-Aggregate Supply suggests that the only long run effect of fiscal policy is an increase in the price level. How could you use the Aggregate Demand and Aggregate Supply model for a more accurate description of the short-run and long-run effects of an increase in government spending? Could you distinguish between different uses of government expenditures to predict their effects on prices and output?1) Define MPC(marginal propensity to consume) and MPS(marginal propensity to save) 2) Define multiplier effects, based on Keynesian Fiscal policy. 3) When economy falls into a recession, what kind of fiscal policy is needed? Give a specific tool of fiscal policy. 4)Discuss the long run effects of "Crowding out" due to a short run expansionary fiscal Policy. 5) Treasure Hunt: a) Go to www.cengage.com/sso (Links to an external site.)Links to an external site. web site. At Bookshelf of Arnold economics of 11th edition, click Economics Course Mate of Economics(11th ed) by Roger A Arnold . Then, click "select chapter" for Ch 11 and try Ch11: Fiscal policy to get access to " Video Office hours " left menu bar. Summarize the contents of "Video Office hours". (3 points) b) Summarize the contents of "Working with Diagrams" of Ch 8 , 9 , 10…Which of the following is not a predicted outcome of implementing automatic fiscal policy? О а. Reduces the size of the multiplier O b. Helps prevent inflation due to inflationary gaps O C. Moderates the business cycle O d. Decreases the deficit O e. Reduces the effects of economic shocks
- The marginal propensity to consume (MPC) for this econamy is . and the spending multiplier for this economy is Suppose the govemment in this economy decides to decrease govemment purchases by $250 bilion. The decrease in government purchases will lead to a decrease in income, generating an initial change in consumption equal to second change in consumption equal to This decreases income yet again, causing a The total change in demand resulting from the initial change in government spending is The following graph shows the aggregate demand curve (AD ) for this economy before the change in govemment spending. Use the green line (trangie symbol) to plot the new aggregate demand curve (AD:) after the multiplier effect takes place. For simplioity, assume that there is no "crowding out." Hint: Be sure that the new aggregate demand curve (AD) is paralel to the initial aggregate demand curve (AD). You can see the slope of AD by selecting t on the graph. 540 AD. AD, 130 100 OUTPUT (Tions of…1.Gomad is a small economy operating with output that is $40 million below its natural level. Assume there is no crowding-out effect and the price level is completely fixed in the short run, how much government spending does the fiscal policymakers need to change to close this recessionary gap if MPC is 0.8?Asap both 1.a) Which of the following statements is correct?l.Expansionary fiscal policy is used to remove a recessionary gap.ll. Expansionary fiscal policy is used to shift AD right.A) l onlyB) I onlyC)both I and ID) neither I nor ll 1.b) Which of the following are examples of contractionary fiscal policy?A) decreasing government expendituresB) increasing taxesC) increasing transfer paymentsD) A and B are both contractionary fiscal policiesE) A, B, and C are all contractionary fiscal policies
- 6,/In each of the following cases, either a recessionary or inflationary gap exists. Assume that the aggregate sup- ply curve is horizontal, so that the change in real GDP arising from a shift of the aggregate demand curve equals the size of the shift of the curve. Calculate both the change in government purchases of goods and ser- vices and the change in government transfers necessary to close the gap. a. Real GDP equals $100 billion, potential output equals $160 billion, and the marginal propensity to consume is 0.75.Question 4 functions as an automatic fiscal stabilizer because it increases when the economy is in a recession and decreases when the economy is in a recovery or boom. O Real GDP Nominal GDP O Unemployment insurance O InflationQuestion 25 Which of the following is true regarding the simple tax multiplier? I has the same sign but larger magnitude than the simple fiscal multiplier. O It has the same sign but lower magnitude than the simple fiscal multiplier. O t has the opposite sign and lower magnitude than the simple fiscal multiplier. It has the opposite sign and a larger magnitude than the simple fiscal multiplier.