Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Answer each of the questions below, making sure to show your work for all calculations and providing an explanation where requested. (a) An American who

Answer each of the questions below, making sure to show your work for all calculations and providing an explanation where requested.

(a) An American who perfectly matches the statistical average receives additional income amounting to $5,000. She spends $4,500 of it. What must be her marginal propensity to save?

(b) Based on the information in part (a), calculate the tax multiplier in this economy.

(c) Which component of aggregate demand will be most directly impacted by a change in the income tax rates? Explain.

(d) Assume the government increases the income tax revenues by $100 billion. Based on the information in part (a), what will be the total possible change in aggregate demand, ceteris paribus?

(e) Assume the government increases government spending by $200 billion. Based on the information in part (a), what will be the total possible change in aggregate demand, ceteris paribus?

(f) What is the autonomous spending in the scenario from part (e)?

(g) Assuming all impacts were explained directly through the multipliers, and based on the information from part (b), what would be the change in GDP that would result from the government decreasing spending by $18 billion at the same time that it decreases corporate taxes by $20 billion?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Local Disaster Resilience Administrative And Political Perspectives

Authors: Ellen Russell, Ashley D Ross

1st Edition

1135910618, 9781135910617

More Books

Students also viewed these Economics questions

Question

Why is flexibility important?

Answered: 1 week ago

Question

understand possible effects of lifestyle risk factors;

Answered: 1 week ago

Question

What are the purposes of promotion ?

Answered: 1 week ago