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- Suppose actual real GDP is $13.56 trillion, potential real GDP is $12.34 trillion, and the marginal propensity to consume is 0.74. If we ignore price effects, and if the government already decided to increase its spending by $1.90 trillion, by how many trillions of dollars should the government change its lump sum taxes to fix the gap? (Round this to two digits after the decimal and enter this value as either a positive value or a negative value without the dollar sign.)Suppose that the federal government decides to reduce the budget deficit and cuts government purchases by $200 billion and raise personal income taxes by $200 billion. Suppose the MPC = .5. a. How much and in which direction would the AD curve shift because of the government spending cut? b. How much and in which direction would the AD curve shift because of the tax increase? Show your work. c. Using the above numbers, draw the AS-AD diagram and illustrate the short-run impact of the combined policy action assuming the economy begins at potential output. Label the original equilibrium with point "A" and the new short-run equilibrium with point "B". d. Describe the impact of the policy action on employment/unemployment, spending, and prices/inflation. Be sure to include the impact of the spending multiplier. e. In moving from points "A" to point "B" on the AS-AD diagram, why do firms change their production? f. Characterize the labor market at point "B". g. Describe the process of…Suppose actual real GDP is $13.74 trillion, potential real GDP is $12.69 trillion, and the marginal propensity to consume is 0.6. If we ignore price effects, and if the government already decided to increase its spending by $1.61 trillion, by how many trillions of dollars should the government change its lump sum taxes to fix the gap? (Round this to two digits after the decimal and enter this value as either a positive value or a negative value without the dollar sign.) Correct Answer: 3.38 Please solve to get that same answer
- Suppose the MPC is 0.60. Assume there are no crowding out or investment accelerator effects. Please answer the following questions with calculation details. (1) If the government increases expenditures by $200 billion, then by how much does aggregate demand shift to the right? (2) If the government decreases taxes by $200 billion, then by how much does aggregate demand shift to the right? (3) Are the above two results the same? Why or why not? MadhaviThe levels of real disposable income and aggregate expenditures for an economy are given in the following table. -- Use the blue points (circle symbol) to plot the expenditures line for this economy on the following graph. Line segments will automatically connect the points. The black line represents the 45-degree line, where aggregate expenditures equal real GDP. Use the black point (plus symbol) to indicate equilibrium real GDP. - - In the previous graph, if the economy produces at an output level that is higher than equilibrium GDP, then the economy is in because aggregate expenditures are real GDP, and unplanned inventory investment is Read GDP (Y) Aggregate Expenditures (AE) (Trillions of dollars per year) (Trillions of dollars per year) 0 1 1 1.75 2 2.5 3 3.25 4 4 5 4.75 6 5.5 7 6.25 8 7 Use the blue points (circle symbol) to plot the expenditures line for this economy on the following graph. Line segments will automatically connect the points. The black line represents the…The following graph plots an aggregate demand curve. Using the graph, shift the aggregate demand curve to depict the impact that a tax cut has on the economy. (?) PRICE LEVEL 130 120 110 100 90 80 70 0 10 20 30 OUTPUT Aggregate Demand 40 50 60 Aggregate Demand Suppose the governments of two very similar economies, economy B and economy A, implement a permanent tax cut of equal size. Investment spending in economy B is less sensitive to changes in the interest rate than investment spending in economy A. The economies are otherwise completely identical.
- Suppose that government spending was increased by 10 units and that this increase was financed by a 10-unit increase in taxes. Would equilibrium income change or remain the same as a result of these two policy actions? If equilibrium income changed, in which direction would it move, and by how much? Explain- Assuming that there is no government spending or trade, an economy’s GDP is the sum of domestic consumption C and investment I, i.e. Y = C+ I- Assume that I is unaffected by GDP- Assume the consumption function is C = c + c Y- In any equilibrium aggregate demand, AD must be equal to Y, GDP. Which NINE of the following statements are correct? a. The aggregate demand equation is given by AD = c + c Y + I b. c is equal to autonomous consumption c. if c is a number between 0 and 1, and I+c >0 then the aggregate demand equation is a straight line that must intersect the 45 degree line at some point. d. In a demand-driven economy the AD curve is a vertical line e. In a demand-driven economy demand is equal to supply in equilibrium f. In a supply-driven economy demand is equal to supply in equilibrium g. In a demand-driven economy, supply creates its own demand h. If the economy above is a demand-driven economy, then the equilibrium solution for Y is given by Y= c + c + I i. If…The following graph shows aggregate demand (AD) and aggregate supply (AS) curves for a hypothetical economy. PRICE LEVEL (CPI) 140 135 130 125 120 115 110 105 100 95 90 200 220 240 AS AD 260 280 300 320 340 REAL GDP (Billions of dollars) 360 380 400 AD₂ New Macro Eq ? Suppose the full employment output level in this economy is $300 billion. In order to move the economy to full-employment output at the lowest possible price level, the aggregate demand curve must shift to the by at each price level.
- Suppose a closed economy with no government spending which in equilibrium is producing an output and income of 2250. Suppose also that the marginal propensity to consume is 0.80, and that, if at full employment, the economy would produce an output and income of 3850 By how much would the government need to cut taxes (T) to bring the economy to full employment? (round your answer to the nearest whole value)Suppose the economy begins at full employment. Label this starting point as point "1." Then, suppose that a long strike by coal miners reduces the coal supply and increases the price of coal. Show the effects on your graph and label the new equilibrium point "2." Lastly, suppose our government wants the economy to return to full-employment as quickly as possible. Should the government intervene? If so, show the impact of successful fiscal policy on your graph. Label this new equilibrium point "3."Assume that a hypothetical economy with an MPC of 0.8 is experiencing severe recession. A) By how much would government spending have to rise to shift the aggreagte demand curve rightward by $ 25 billion? How large a tax cut would be needed to achieve the same increase in aghregate demand? Instructions: Round your answer to 2 decimal places and enter your answer as a positive number. Tax cut= ? (billion) B) Determine one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt. Increase government spending by (?) billion. Increase taxes by (?) billion.