Question

Suppose the MPC of the US is estimated to be 0.33, what will be the addition...

Suppose the MPC of the US is estimated to be 0.33, what will be the addition to national output if the US government spends $30b? Suppose the US government gives a tax cut of an equivalent amount; will the outcome be different? Why?

Homework Answers

Answer #1

The spending multiplier=1/(1-MPC)

=1/(1-0.33)

=1.49253731

the increase in national output because of increase in government spending=govenment spending *multiplier

=30*1.49253731

=$44.78 b

the tax multiplier=-MPC/(1-MPC)

=-0.33/(1-0.33)

=-0.492537313

the increase in output because of tax cut= tax cut amount *tax multiplier

=(-30)*(-0.492537313)

=14.78 b

the output is different because the portion of the tax cut is saved by the peoples and the government spending is going into the economy directly

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Suppose the MPC of the US is estimated to be 0.33, what will be the addition...
Suppose the MPC of the US is estimated to be 0.33, what will be the addition to national output if the US government spends $30b? Suppose the US government gives a tax cut of an equivalent amount; will the outcome be different? Why?
  Suppose the US economy is characterized by the following behavioral equations: C = c0 + c1*YD...
  Suppose the US economy is characterized by the following behavioral equations: C = c0 + c1*YD YD = Y – T Investment expenditures and Government spending are exogenously given. GDP in 2009 was roughly $16,000 billion. As you know GDP fell by approximately 4 percentage points in 2009. If the propensity to consume were 0.8, by how much would government spending have to have increased to prevent a decrease in output? If the propensity to consume were 0.8, by how...
1. In a closed economy, suppose GDP equals $21 trillion, consumption equals $13 trillion, the government...
1. In a closed economy, suppose GDP equals $21 trillion, consumption equals $13 trillion, the government spends $7 trillion and has a budget deficit of $800 billion. Find government saving, taxes, private saving, national saving, and investment. Please show clearly how you calculated your final answers, and box/circle your final answers (in trillions of dollars) with proper labels No credit will be given to an answer in incorrect units, in notations that differ from what’s used in the lectures, without...
Suppose the US government decrased its expenditure. What should the Fed do to (a) hold Money...
Suppose the US government decrased its expenditure. What should the Fed do to (a) hold Money supply constant, (b) hold interest rate constant and (c) hold output constant? Use the IS/LM model to answer each case.
Suppose the US government decreased its expenditure. What should the Fed do to (a) hold Money...
Suppose the US government decreased its expenditure. What should the Fed do to (a) hold Money supply constant, (b) hold interest rate constant (c) hold output constant? Use the IS/LM model to answer each case.
Think of the simple gravity model. Suppose there are two countries: the US and Mexico. Mexico’s...
Think of the simple gravity model. Suppose there are two countries: the US and Mexico. Mexico’s GDP is 25 while the US’s GDP is 50. The distance between the US and Mexico is 2 while A equals 6. Using the information in the question setup, what is the predicted amount of trade that should occur between the US and Mexico? If the GDP of Mexico doubles, and the GDP of the US triples at the same time, what would the...
Suppose the following aggregate expenditure model describes the US economy: C = 1 + (8/9)Yd T...
Suppose the following aggregate expenditure model describes the US economy: C = 1 + (8/9)Yd T = (1/4)Y I = 2 G = 4 X = 3 IM = (1/3)Y where C is consumption, Yd is disposable income, T is taxes, Y is national income, I is investment, G is government spending, X is exports, and IM is imports, all in trillions $US. (a) Derive a numerical expression for aggregate expenditure (AE) as a function of Y. Calculate the equilibrium...
During the Great Depression total production in the US stayed below potential output for many years,...
During the Great Depression total production in the US stayed below potential output for many years, and the unemployment rate reached 25% in 1933. Many economists argue that the WWII allowed the US to pursue one of its biggest government spending programs in history (as a result, the US government budget deficit was greater than 20% during the war. Currently the government deficit is about 2.5% of GDP). Moreover, the government debt became more than 110% of GDP in late...
Taking the Drye case in your Printed Materials a little further, what do you suppose the...
Taking the Drye case in your Printed Materials a little further, what do you suppose the result would have been if Rohn had gone to his mother, Irma, when she was on her death bed and said to her, "Mom, I''m insolvent and I owe the federal government some $325,000 on unpaid tax assessments. If you die without a will ["intestate"] the government is going to get all your money. Why don''t you make a will leaving everything to my...
Consider the problem of carbon dioxide emissions. Let us assume that there are polluters and consumers...
Consider the problem of carbon dioxide emissions. Let us assume that there are polluters and consumers in two regions, the OECD (O) and the rest of the world (R). Suppose that the marginal cost of controlling CO2 emissions is $10 per ton of emissions. Let the marginal willingness to pay for pollution reduction be 13 - Q for region O and 12 - 2Q for region R, where Q is the amount of pollution reduction. The United Nations is considering...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT