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 0.6, 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 0.8. 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. The 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 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 0.6, 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 0.8. 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. The 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 Real GDP (billions of dollars)

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section: Chapter Questions

Problem 5DQ

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Assuming the economy is in long run and the govt implemnents a tax cut of $420 Billion, there is no crowding out, and marginal propensity to consume is 0.9 what's the initial and total effect of the tax reduction on aggregate demand? Is there a formula to calculate this?
Only typed answer a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ ___billion b. Assuming the MPC in this nation is 0.75, how much do government purchases need to change to shift aggregate demand by the amount you found in part a? $ ___billion c. Now suppose the MPC is 0.6. To restore the economy to its long-run equilibrium, aggregate demand must be changed by $ ___billion and government purchases must be changed by $ ___billion.
The 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 Instructions: Enter your answer as a whole number. If you are entering a negatlve number Include a minus sign. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrilum? $, billion b. If the MPC is 0.6 , 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 0.8 . c. How much does aggregate demand and taxes need to change to restore the economy to Its long-run equilibrlum? Aggregate demand needs to change by $ billion and taxes need to change by $ billion.
Refer to the following figure 1. For this economy, if the actual price level exceeds theexpected price level, how much output will the economyproduce in the short-run? A)$17 trillionB)$17.2 trillionC)$16.7 trillionD) Both A and C.2. Given the situation in part (a), this economy wouldexperience A) a recessionary gap of $0.3 trillionB) an expansionary gap of $0.2 trillionC) neither a recessionary gap nor an expansionary gap.D) an expansionary gap of $17.2 trillion. 3. Given the situation in part (a), in this economy (circlethe letter representing the right answer below)A) the actual rate of unemployment would be less than thenatural rate of unemployment.B) the actual rate of unemployment would be above the naturalrate of unemployment.C) the actual rate of unemployment would be equal to thenatural rate of unemployment.D)none of the above.4. In this economy, given the situation in part (a), in thelong-run (circle the letter representing the right answerbelow)A) the nominal wage…
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A. Assume that a hypothetical economy with an MPC of .75 is experiencing severe recession. By how much would government spending have to rise to shift the aggregate demand curve rightward by $70 billion? B. How large a tax cut would be needed to achieve the same increase in aggregate demand?
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