Principles of Macroeconomies Instructor: Sandhya Patlolla HW#S: Due date Friday,
ID: 1105954 • Letter: P
Question
Principles of Macroeconomies Instructor: Sandhya Patlolla HW#S: Due date Friday, November 10h 2017 1. Use the table below to answer the following questions. (USE BLANK COLUMNS AS NEEDED) Real GDP C $290 298 320 306 310 330 340 350 360 314 322 330 370 346 338 380 354 (a) If taxes were zero, government purchases were $16, planned investment is $10, and net exports are -2, what is the equilibrium GDP? (b) If taxes are $12, government purchases were $16, planned investment is S10, and net exports are -2, what is the new equilibrium GDP? In the above example, suppose the potential GDP is $350 and equilibrium GDP is $310. By how much must government spending need to be increased to eliminate the gap? (c) (ii) By how much taxes need to be reduced to eliminate the recessionary gap?Explanation / Answer
2.
C.
Input prices will be fixed, but output prices can be changed in the short run supply curve.
3.
A.
Working note:
Tax multiplier = -(MPC/MPS) = -(.8/.2) = -4
Hence, impact of $10 billion increase in tax = 10*(-4) = -$40 Billion
4.
A.
It is the example of fiscal policy.
5.
C.
it is the attempt by the government to affect the demand. hence, it is discretionary policy.
6.
D
With the change in resource prices and productivity, supply changes.
7.
D
Due to price change, the supply change along the curve. There is no any left or right shift in the supply curve.
8.
B.
it is the example of most expansionary policy due to its biggest positive impact upon the AD.
9.
D.
Net effect of the decrease in spending and taxes by equal amount will be the net decrease in demand. It will cause the leftward shift in the AD curve.
10.
C.
Expansionary fiscal policy is used to increase the aggregate demand level.
11.
A.
Reduction of taxes will make a positive multiplier effect by (MPC/MPS). It will make more money available to the consumers to spend and increase the demand.
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