Question

a) Explain why a $500 million increase in government purchases of goods and services will generated...

a) Explain why a $500 million increase in government purchases of goods and services will generated a bigger increase in real GDP than a $500 million increase in government transfer payments like Social Security and unemployment payments.

b) The country of Boldovia has no unemployment benefits and a tax system that only uses lump sum taxes. The neighboring country of Moldovia has generous unemployment benefits and a tax system where residents must pay a percentage of their income. Which country will experience a greater variation in GDP in response to demand shocks, positive and negative?

Homework Answers

Answer #1

Answer :-

(A)

=> As $500 million increasing in the government purchase of should directly raises aggregate spending by $500 million then starts the multiplier in the motionn. It will increase real GDP by $500 million *1/(1-MPC).

=> A $500 million increase in government transfers like social security and employment payments will increases aggregate spending only to the extent that it leads to the increase in consumer spendingg. here Consumer spending will increase by MPC *$1 for every time $1 increase in disposable income where the MPC is < 1.

=> So a $500 millions increased in government transfers should cause increase in real GDP should only MPC times as much as to $500 million raise in government ppurchases of goods and services. It will increase real GDP by $500 million * MPC/(1-MPC).

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
D. Show why a $100 increase in government purchases of goods and services will have a...
D. Show why a $100 increase in government purchases of goods and services will have a larger effect on real GDP than a $100 increase in government transfers or a $100 decrease in taxes by completing the accompanying table. The economy has a marginal propensity to consume (MPC) of 0.6. When answers aren’t whole dollars round each answer to two (2) decimal places (e.g., 51.6678 = 51.67) before summing in 18 – 20. All submitted answers should also be entered...
Multiple questions: If Government spending decreases by $100, GDP will    a) increase by $500   b)...
Multiple questions: If Government spending decreases by $100, GDP will    a) increase by $500   b) fall by $500   c) fall by $400    d) increase by $900   e) fall by $900 If taxes increase by $100, GDP will    a) increase by $400   b) decrease by $400   c) rise by $500    d) fall by $600       e) not change Suppose that Congress reduced Government spending at the same time that the price of imported oil increased. This would...
The components of spending are C, I, G and NX. G stands for government purchases which...
The components of spending are C, I, G and NX. G stands for government purchases which do NOT include transfer payments. Which of the following is NOT a transfer payment. government pays the salary of military troops social security payments to retirees unemployment benefits to workers who have lost their jobs payments to low income individuals to support food purchases (colloquially known as food stamps) Which of the following would increase consumption spending AND shift the aggregate demand curve to...
5. Government purchases of goods and services differ from changes in taxes and transfer payments in...
5. Government purchases of goods and services differ from changes in taxes and transfer payments in that: A) the former is a type of fiscal policy, while the latter is a type of monetary policy. B) the former is a type of monetary policy, while the latter is a type of fiscal policy. C) the former influences aggregate demand directly, while the latter influences aggregate demand indirectly. D) the former influences aggregate demand indirectly, while the latter influences aggregate demand...
1.Taxes can be justified if the government uses the revenue to (i) provide public goods such...
1.Taxes can be justified if the government uses the revenue to (i) provide public goods such as national defense. (ii) clean up negative externalities such as water pollution. (iii) regulate a common resource such as fish in a public lake. (iv) provide goods with positive externalities such as medical research. A) (ii) only B) (ii) and (iii) only C) (i), (ii), and (iii) only D) (i), (ii), (iii), and (iv) 2.A person's tax liability refers to A) the percentage of...
31.   An increase in government spending of $200 million financed by a new tax of $200...
31.   An increase in government spending of $200 million financed by a new tax of $200 million in an economy with a marginal propensity to consume of .90 could result in an increase in nominal GDP (assuming a closed economy with no taxes or leakages) of up to how much? (a) $0; (b) $2,000 million; (c) $180 million; (d) $200 million. 32.   One important consequence of widened income and wealth disparities is a: (a) higher rate of inflation than would...
[16] Over the last 25 years the dollar amount of government expenditures has been: A) increasing....
[16] Over the last 25 years the dollar amount of government expenditures has been: A) increasing. B) decreasing. C) relatively constant. D) fluctuating widely up and down. [17] Which of the following is a public good? A) A lighthouse. B) A private hospital. C) A commercial airliner. D) A corporation's charitable redevelopment of a city neighborhood. [18] A good or service that is provided for all of society, and no one is excluded from its use, is called: A) a...
2) A spike in “All Other Outlays” of the federal government in 2009 was due to:...
2) A spike in “All Other Outlays” of the federal government in 2009 was due to: a) an increase in the financial aid given to Greece earlier that year. b) an increase in the expenditures on Social Security and Medicare. c) the fiscal stimulus package passed earlier that year. d) a sudden increase in military expenditure as a result of the war in Iraq. e) an increase in the national debt earlier that year. 3) In 2016, welfare spending accounted...
The crowding out effect is zero if Select one: a. the LM-curve is vertical b. the...
The crowding out effect is zero if Select one: a. the LM-curve is vertical b. the central bank conducts open market sales following fiscal expansion c. income is stimulated via a tax cut rather than an increase in government spending d. the central bank conducts open market purchases following fiscal expansion e. the LM-curve is horizontal An asset (other than money) is considered to be more liquid if Select one: a. it can be quickly and cheaply transferred into money...
Please don't copy and paste from other website. Outline the key fiscal and monetary policy actions,...
Please don't copy and paste from other website. Outline the key fiscal and monetary policy actions, respectively, of New Zealand against the COVID-19 shocks(already outlined below) use appropriate macroeconomic models and theories covered in this course to explain their expected impacts. Discuss any limitations of these policy actions. (~600 words) TIPS: ⮚ If there are many policy actions, you could list all of them but focus on the key ones for discussion. ⮚ The government may take multiple actions (e.g....
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT