Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
7th Edition
ISBN: 9780134472669
Author: Blanchard
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 3, Problem 10QAP
a)
To determine
To find:Amount of dollars in 3 percentage points of $15000 billion.
b)
To determine
To find:Changes in government spending to prevent fall in output.
c)
To determine
To find:Changes in tax to prevent decline in output.
d)
To determine
To find:Amount of Increase in government spending and taxes to prevent decline in output.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Please answer the question below:
If the current real GDP is P700 billion, which of the following policies would bring the economy to potential output?
a. increase government spending by P25 billion
b. increase government spending by P100 billion
c. increase government spending by P20 billion
d. decrease government spending by P100 billion
If current real GDP is P700 billion, which of the following policies would bring the economy to potential output?
a. decrease taxes by P100 billion
b. increase taxes by P100 billion
c. decrease taxes by P25 billion
d. increase taxes by P25 billion
* the attached photo is just connected to the question *
What is the eventual effect on real GDP if the government increases its purchases of goods and services by $75,000? Assume the marginal propensity to consume (MPC) is 0.75.
$
What is the eventual effect on real GDP if the government, instead of changing its spending, increases transfers by $75,000? Assume the MPC has not changed.
$
An increase in government transfers or taxes, as opposed to an increase in government purchases of goods and services, will result in
an identical eventual effect on real GDP.
no change to real GDP.
a larger eventual effect on real GDP.
a smaller eventual effect on real GDP.
Suppose the following list of events describes all of the economic activity resulting from an increase in government spending.
Suppose that at each step after the initial one, the marginal propensity to consume is 0.67 and the tax rate is 16%.
Step 0. The government spends $8500 on meat to host a very large dinner for foreign diplomats.
Step A. The butcher takes the income earned by selling the meat, saves some, and spends the rest on a wedding cake for his
daughter.
Step B. The baker who produced the wedding cake saves some of her earnings and uses the rest to purchase beautiful
candlesticks as gifts for all of her friends.
Step C. The local candlestick maker saves some of his revenue for retirement and spends the rest on building materials to
improve his house.
Instructions: Modify the settings in the interactive tool to represent this event. Then click "Spending Rounds" and use the table to
answer the following questions. Round answers to the nearest cent, if necessary.
How much…
Chapter 3 Solutions
Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
Knowledge Booster
Similar questions
- Suppose the following list of events describes all of the economic activity resulting from an increase in government spending. Suppose that at each step after the initial one, the marginal propensity to consume is 0.62 and the tax rate is 8%. Step 0. The government spends $8500 on meat to host a very large dinner for foreign diplomats. Step A. The butcher takes the income earned by selling the meat, saves some, and spends the rest on a wedding cake for his daughter. Step B. The baker who produced the wedding cake saves some of her earnings and uses the rest to purchase beautiful candlesticks as gifts for all of her friends. Step C. The local candlestick maker saves some of his revenue for retirement and spends the rest on building materials to improve his house. Instructions: Modify the settings in the interactive tool to represent this event. Then click "Spending Rounds" and use the table to answer the following questions. Round answers to the nearest cent, if necessary. How much does…arrow_forwardUse the following equations for exercises 16–18. C = $100 + .8Y I = $200 G = $250 X = $100 – .2Y 16. What is the equilibrium level of real GDP? 17. What is the new equilibrium level of real GDP if government spending increases by $150? 18. What is the new equilibrium level of real GDP if government spending and taxes both increase by $150?arrow_forwardExplain graphically the determination of equilibrium GDP for a private economy through the aggregate expenditures model. Now add government purchases (any amount you choose) to your graph, showing its impact on equilibrium GDP. Finally, add taxation (any amount of lump-sum tax that you choose) to your graph and show its effect on equilibrium GDP. Looking at your graph, determine whether equilibrium GDP has increased, decreased, or stayed the same given the sizes of the government purchases and taxes that you selected.arrow_forward
- Macmillan Learning What is the eventual effect on real GDP if the government increases its purchases of goods and services by $60,000? Assume the marginal propensity to consume (MPC) is 0.75. What is the eventual effect on real GDP if the government, instead of changing its spending, increases transfers by $60,000? Assume the MPC has not changed. An increase in government transfers or taxes, as opposed to an increase in government purchases of goods and services, will result in O no change to real GDP. O a smaller eventual effect on real GDP. a larger eventual effect on real GDP. O an identical eventual effect on real GDP.arrow_forwardChapter 11 shows that increased government purchases, with taxes held constant, can eliminate a recessionary gap. How could a tax cut achieve the same result?arrow_forwardSuppose that the economy is depicted by the following relationship: where: C=$100 +0.75 (Y-T) G= $ 600 T = $ 600 1= $200 X = $ 50 Expenditures =C+I+G+X The economy is in equilibrium at a level of real GDP or income of $ Now suppose that the government decides to increase government spending by $50. What is the new equilibrium level of GDP or income? $(Round your answer to the nearest dollar) (Round your answer to the nearest dollar)arrow_forward
- The country is experiencing a serious rise in inflation which the government wants to control through fiscal policy. The Government will decrease spending by $20 million and increase taxes by $15 million. The marginal propensity to consume (MPC) is 0.80. What will be the effect on GDP and by how much? A recessionary gap is how much GDP needs to increase from the current GDP to achieve full employment. Let's say that we are experiencing a recessionary gap of $36 million. Also assume that the MPC equals .80. The government decides to decrease taxes to close the recessionary gap. How much will be the tax decrease? An inflationary gap is how much GDP needs to decrease from the current GDP to maintain employment while avoiding inflation. Let's say that we are experiencing an inflationary gap of $200 million. The government decides to increase taxes. Assume the MPC equals .80. How much will the tax increase be? The government wants to achieve a balanced budget. It therefore increases…arrow_forwardThe graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by changing taxes to reduce the burden of this recession. Fiscal Policy Price Level 150 LRAS AS 140 130 120 110 100 90 80 70 60 50 40 30 AD1 AD 0 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) Instructions: Enter your answer as a whole number. If you are entering a negative number Include a minus sign. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ billion b. If the MPC is 0.5, how much do taxes need to change to shift aggregate demand by the amount you found in part a? billion Suppose Instead that the MPC is 0.6. c. How much does aggregate demand and taxes need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $[ billion and taxes need to change by $[ billion.arrow_forwardThe country is experiencing a serious rise in inflation which the government wants to control through fiscal policy. The Government will decrease spending by $20 million and increase taxes by $15 million. The marginal propensity to consume (MPC) is 0.80. What will be the effect on GDP and by how much? A recessionary gap is how much GDP needs to increase from the current GDP to achieve full employment. Let us say that we are experiencing a recessionary gap of $36 million. Also assume that the MPC equals .80. The government decides to decrease taxes in order to close the recessionary gap. What will be the tax decrease? An inflationary gap is how much GDP needs to decrease from the current GDP to maintain employment while avoiding inflation. Let us say that we are experiencing an inflationary gap of $200 million. The government decides to increase taxes. Assume that the MPC equals .80. What will be the tax increase? d. The government wants to achieve a balanced budget. It, therefore,…arrow_forward
- The country is experiencing a serious rise in inflation which the government wants to control through fiscal policy. The Government will decrease spending by $20 million and increase taxes by $15 million. The marginal propensity to consume (MPC) is 0.80. What will be the effect on GDP and by how much? A recessionary gap is how much GDP needs to increase from the current GDP to achieve full employment. Let us say that we are experiencing a recessionary gap of $36 million. Also assume that the MPC equals .80. The government decides to decrease taxes in order to close the recessionary gap. What will be the tax decrease? An inflationary gap is how much GDP needs to decrease from the current GDP to maintain employment while avoiding inflation. Let us say that we are experiencing an inflationary gap of $200 million. The government decides to increase taxes. Assume that the MPC equals .80. What will be the tax increase? d. The government wants to achieve a balanced budget. It therefore…arrow_forwardIn 2009, the US Federal government cut taxes by approximately $300 billion, increased government spending by approximately $300 billion, and increased transfer payments by approximately $200 billion. Answer the following question assuming that the marginal propensity to consume was 0.75. 1. Assume instead that American consumers, fearing an economic collapse, increased their marginal propensity to save to 0.5. Would this increase, decrease, or not change the effectiveness of the stimulus package? Explain.arrow_forwardIn the country of Krugman, a business spent $100 million building a factory. GDP eventually increased by 200 million. People spend 11% of every dollar on imports. What is the marginal propensity to consume in this economy? Write your answer as a number, between 0 and 1. If you think the answer is 0, write 0.00, not 0. Answer: Study the graph below. When will the multiplier be biggest? Select one: The multiplier will be the same size no matter what Aggregate Demand is b. The multiplier will be one no matter what aggregate demand is When aggregate demand is at AD1 d. When aggregate demand is at AD3 e When aggregate demand is at AD2 Price Level AD₁ AS e All of these are true AD₂ AD₁ GDP Why is potential output called potential, when it is not actually the most the economy can produce? Select one: a. Because potential is the most the economy can produce right now, with the technology and workers and equipment we have right now. Ob. Because economists just like to be confusing for no reason…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSON
Engineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education