Suppose there were an increase in Government spending of $100 billion. The MPC is 75 andthe tax rate is 2. No. imports a. What is the net impact on the economy if the crowding out effect is equal to $20 billion?b. What if the crowding out effect is $60 billion7c. Which of the two scenarios corresponds to the reaction of an economy which is closer to fullemployment? Explain

Suppose there were an increase in Government spending of $100 billion. The MPC is 75 andthe tax rate is 2. No. imports a. What is the net impact on the economy if the crowding out effect is equal to $20 billion?b. What if the crowding out effect is $60 billion7c. Which of the two scenarios corresponds to the reaction of an economy which is closer to fullemployment? Explain

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter30: Government Budgets And Fiscal Policy

Section: Chapter Questions

Problem 38CTQ: Why is spending by the U.S. government on scientific research at NASA fiscal policy while spending...

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Why is spending by the U.S. government on scientific research at NASA fiscal policy while spending by the University of Illinois is not fiscal policy? Why is a cut in the payroll tax fiscal policy whereas a cut in a state income tax is not fiscal policy?
3. a. Suppose that in a year when GDP is rising rapidly you also observe theGovernment budget balance increasing. How can you explain this correlation? b. Now suppose instead that in a year when GDP is rising rapidly you also observethe Government budget balance decreasing. How can you explain this correlation?
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1. Provide a written conclusion on Fiscal Policy?
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1. Why is a $100 billion increase in government spending on goods and services more expansionary than a $100 billion decrease in taxes?
15. If consumers in a country spend 3/4 of their disposable income. If their governmentincreases its spending by 75 trillion and in order to maintain a balanced budgetsimultaneously increases taxes by 75 trillion. Calculate the effect of the 75 trillion change ingovernment spending and 75 trillion change in taxes on the country’s aggregate demand.
this is a true or false question: "If social security payments to retirees increase, AD will increase and raise Y*." So if SS payments increase, that would increase GOVT transfer payments which would move the GOVT towards a deficit. But would it still increase Y*? Y* is the equilibrium spending or total value of spending in the economy, so I would assume so, right? can you explain this a bit more for me?
8. Which of the following is the best example of Crowding out? The US government spends more (G increases), therefore they must increase taxes. If US G increases, interest rates fall, thereby causing business investment, I. to increase. If US government spending on libraries increases, reading will become more popular, and people then will spend more on books. O If US G increases and this is financed through borrowing from foreign lenders, this tends to cause an appreciation of the $. In turn this causes exports to decrease in the short run. O None of the other options.