Knowee
Questions
Features
Study Tools

11) Suppose President Obama is successful in passing a $5 billion tax increase. Assume that taxes are fixed, the economy is closed, and the marginal propensity to consume is 0.75. What happens to equilibrium GDP?A) There is a $20 billion increase in equilibrium GDP.B) There is a $20 billion decrease in equilibrium GDP.C) There is a $15 billion increase in equilibrium GDP.D) There is a $15 billion decrease in equilibrium GDP.12) What is the government purchases multiplier if the tax rate is 0.1 and the marginal propensity to consume is 0.9? Assume the economy is closed.A) 5.3B) 10C) 11.1D) 10013) In an open economy, the government purchases multiplier will beA) larger as the marginal propensity to import increases.B) smaller as the marginal propensity to import increases.C) larger as the marginal propensity to tax increases.D) smaller as the marginal propensity to consume increases.14) Calculate the government purchases multiplier if the marginal propensity to consume equals 0.8, the tax rate is 0.1, and the marginal propensity to import equals 0.2.A) 2.1B) 1.9C) 1.7D) 1.415) The government purchases multiplier will be larger if the marginal income tax rate decreases.16) The larger the marginal propensity to import, the larger the government purchases multiplier.17) In a closed economy with fixed or autonomous (non-income dependent) taxes, the balanced budget government purchases multiplier is negative.18) Assuming a fixed amount of taxes and a closed economy, calculate the value of the government purchases multiplier, the tax multiplier, and the balanced budget multiplier if the marginal propensity to consume equals 0.5.19) Calculate the value of the government purchases multiplier if the marginal propensity to consume equals 0.9, the tax rate equals 0.25, and the marginal propensity to import equals 0.15.20) Assuming a fixed amount of taxes and a closed economy, calculate the value of the government purchases multiplier, the tax multiplier, and the balanced budget multiplier if the marginal propensity to consume equals 0.75.21) Calculate the value of the government purchases multiplier if the marginal propensity to consume equals 0.8, the tax rate equals 0.2, and the marginal propensity to import equals 0.05.

Question

  1. Suppose President Obama is successful in passing a 5billiontaxincrease.Assumethattaxesarefixed,theeconomyisclosed,andthemarginalpropensitytoconsumeis0.75.WhathappenstoequilibriumGDP?A)Thereisa5 billion tax increase. Assume that taxes are fixed, the economy is closed, and the marginal propensity to consume is 0.75. What happens to equilibrium GDP?A) There is a 20 billion increase in equilibrium GDP.B) There is a 20billiondecreaseinequilibriumGDP.C)Thereisa20 billion decrease in equilibrium GDP.C) There is a 15 billion increase in equilibrium GDP.D) There is a $15 billion decrease in equilibrium GDP.12) What is the government purchases multiplier if the tax rate is 0.1 and the marginal propensity to consume is 0.9? Assume the economy is closed.A) 5.3B) 10C) 11.1D) 10013) In an open economy, the government purchases multiplier will beA) larger as the marginal propensity to import increases.B) smaller as the marginal propensity to import increases.C) larger as the marginal propensity to tax increases.D) smaller as the marginal propensity to consume increases.14) Calculate the government purchases multiplier if the marginal propensity to consume equals 0.8, the tax rate is 0.1, and the marginal propensity to import equals 0.2.A) 2.1B) 1.9C) 1.7D) 1.415) The government purchases multiplier will be larger if the marginal income tax rate decreases.16) The larger the marginal propensity to import, the larger the government purchases multiplier.17) In a closed economy with fixed or autonomous (non-income dependent) taxes, the balanced budget government purchases multiplier is negative.18) Assuming a fixed amount of taxes and a closed economy, calculate the value of the government purchases multiplier, the tax multiplier, and the balanced budget multiplier if the marginal propensity to consume equals 0.5.19) Calculate the value of the government purchases multiplier if the marginal propensity to consume equals 0.9, the tax rate equals 0.25, and the marginal propensity to import equals 0.15.20) Assuming a fixed amount of taxes and a closed economy, calculate the value of the government purchases multiplier, the tax multiplier, and the balanced budget multiplier if the marginal propensity to consume equals 0.75.21) Calculate the value of the government purchases multiplier if the marginal propensity to consume equals 0.8, the tax rate equals 0.2, and the marginal propensity to import equals 0.05.
...expand
🧐 Not the exact question you are looking for?Go ask a question

Solution

  1. To determine the impact of a $5 billion tax increase on equilibrium GDP, we need to consider the marginal propensity to consume (MPC). The MPC represents the proportion of additional income that individuals choose to spend. In this case, the MPC is given as 0.75.

When taxes increase, disposable income decreases, leading to a decrease in consumption. The decrease in consumption will have a multiplier effect on the overall economy. The formula to calculate the multiplier effect is 1 / (1 - MPC).

In this case, the MPC is 0.75, so the multiplier effect is 1 / (1 - 0.75) = 1 / 0.25 = 4.

Since the tax increase is 5billion,theimpactonequilibriumGDPcanbecalculatedbymultiplyingthetaxincreasebythemultipliereffect:5 billion, the impact on equilibrium GDP can be calculated by multiplying the tax increase by the multiplier effect: 5 billion * 4 = $20 billion.

Therefore, the correct answer is A) There is a $20 billion increase in equilibrium GDP.

  1. The government purchases multiplier can be calculated using the formula 1 / (1 - MPC) * (1 - tax rate).

In this case, the MPC is 0.9 and the tax rate is 0.1.

The government purchases multiplier = 1 / (1 - 0.9) * (1 - 0.1) = 1 / 0.1 * 0.9 = 10.

Therefore, the correct answer is B) 10.

  1. In an open economy, the government purchases multiplier will be smaller as the marginal propensity to import increases. Therefore, the correct answer is B) smaller as the marginal propensity to import increases.

  2. To calculate the government purchases multiplier, we need to consider the marginal propensity to consume (MPC), the tax rate, and the marginal propensity to import.

In this case, the MPC is 0.8, the tax rate is 0.1, and the marginal propensity to import is 0.2.

The government purchases multiplier = 1 / (1 - MPC) * (1 - tax rate) * (1 - marginal propensity to import) = 1 / (1 - 0.8) * (1 - 0.1) * (1 - 0.2) = 1 / 0.2 * 0.9 * 0.8 = 1 / 0.144 ≈ 6.94

Therefore, the correct answer is not provided in the options.

  1. The statement is incorrect. The government purchases multiplier is not directly affected by changes in the marginal income tax rate.

  2. The statement is incorrect. The government purchases multiplier is not directly affected by the marginal propensity to import.

  3. The statement is incorrect. In a closed economy with fixed or autonomous taxes, the balanced budget government purchases multiplier is positive, not negative.

  4. To calculate the government purchases multiplier, tax multiplier, and balanced budget multiplier, we need to consider the marginal propensity to consume (MPC).

The government purchases multiplier = 1 / (1 - MPC) Tax multiplier = -MPC / (1 - MPC) Balanced budget multiplier = 1

In this case, the MPC is 0.5.

The government purchases multiplier = 1 / (1 - 0.5) = 1 / 0.5 = 2 Tax multiplier = -0.5 / (1 - 0.5) = -0.5 / 0.5 = -1 Balanced budget multiplier = 1

Therefore, the values are: Government purchases multiplier = 2 Tax multiplier = -1 Balanced budget multiplier = 1

  1. To calculate the government purchases multiplier, we need to consider the marginal propensity to consume (MPC), the tax rate, and the marginal propensity to import.

In this case, the MPC is 0.9, the tax rate is 0.25, and the marginal propensity to import is 0.15.

The government purchases multiplier = 1 / (1 - MPC) * (1 - tax rate) * (1 - marginal propensity to import) = 1 / (1 - 0.9) * (1 - 0.25) * (1 - 0.15) = 1 / 0.1 * 0.75 * 0.85 = 1 / 0.06375 ≈ 15.69

Therefore, the correct answer is not provided in the options.

  1. To calculate the government purchases multiplier, tax multiplier, and balanced budget multiplier, we need to consider the marginal propensity to consume (MPC).

The government purchases multiplier = 1 / (1 - MPC) Tax multiplier = -MPC / (1 - MPC) Balanced budget multiplier = 1

In this case, the MPC is 0.75.

The government purchases multiplier = 1 / (1 - 0.75) = 1 / 0.25 = 4 Tax multiplier = -0.75 / (1 - 0.75) = -0.75 / 0.25 = -3 Balanced budget multiplier = 1

Therefore, the values are: Government purchases multiplier = 4 Tax multiplier = -3 Balanced budget multiplier = 1

  1. To calculate the government purchases multiplier, we need to consider the marginal propensity to consume (MPC), the tax rate, and the marginal propensity to import.

In this case, the MPC is 0.8, the tax rate is 0.2, and the marginal propensity to import is 0.05.

The government purchases multiplier = 1 / (1 - MPC) * (1 - tax rate) * (1 - marginal propensity to import) = 1 / (1 - 0.8) * (1 - 0.2) * (1 - 0.05) = 1 / 0.2 * 0.8 * 0.95 = 1 / 0.152 ≈ 6.58

Therefore, the correct answer is not provided in the options.

This problem has been solved

Similar Questions

Assume the corresponding multiplier values: government purchases multiplier (2) and tax multiplier (-1.6). Suppose the current equilibrium GDP is $13.5 trillion and the potential GDP is $14.3 trillion. To return to potential GDP, what is the necessary change in government purchases? Government purchases decrease by $800 billion. Government purchases increase by $800 billion. Government purchases decrease by $125 billion. Government purchases increase by $400 billion. Government purchases increase by $500 billion.

The government increases unemployment benefits by $1 million and funds it entirely by raising taxes. The absolute value of the government purchases multiplier is 3, that of the tax multiplier is 2 and that of the transfer payment multiplier is also 2. What is the impact on GDP? GDP increases by $1 million GDP decreases by $1 million GDP increases by $3 million GDP does not change GDP decreases by $3 million

If the government purchases multiplier equals 2, and real GDP is $14 trillion with potential GDP $15 trillion, then government purchases would need to increase by ________ to restore the economy to potential GDP.

1.      In a classical model of a closed economy, assume the equilibrium GDP (Y) is $7000, Consumption C is given by the equation.C = 270 + 0.8 (Y-T).Taxes (T) is equal to $800 and government spending G is $500.What is the equilibrium investment?

Consider a 3-setor economy and its PAE = 50 + 0.7Y, which sets the equilibrium output topotential output.a Determine the equilibrium income and the size of multiplier.b. If the tax rate (1) is 0.1, what is the marginal propensity to consumer? c.Assume there is an exogenous decrease in investment spending by 10 units due to a pessimistic expectation of the economy (a business expectation is called the animal spirits' by Keynes). Determine the new equilibrium output and output gap.d. Suppose that government wants to use a tax cut (i.e., a lower r) to eliminate the output gap in (c). Determine the new tax rate to achieve this goal.

1/3

Upgrade your grade with Knowee

Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.