Problem sets/policy questions
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Problem sets/policy questions.
19. Suppose that the economy starts at equilibrium and the mpc = 0.8. What would be the effect of a 500 increase in taxes once all the rounds of the multiplier process are complete?
20. Assume the government cuts its purchases by $150 billion. As a result, the budget deficit is reduced by $40 billion, private domestic saving decreases by $10 billion, disposable personal income decreases by $80 billion and the trade deficit is reduced by $15 billion. By how much has national income (Y) changed?
21.Compute the GDP using the data in the table
Government Purchases 15
Consumption 90
Gross Investment 20
Consumption of Fixed Capital 5
Exports 8
Imports 12
22. Using demand and supply analysis to assist you, what are the effects on the exchange rate between
the British pound and the Japanese yen from: a decrease in Japanese interest rates
(Please respond by stating which currency will appreciate and which one will depreciate. That is all that is required)
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Solution Summary
The expert examines economic equilibrium policy. The GDP is computed.
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Problem sets/policy questions.
19. Suppose that the economy starts at equilibrium and the mpc = 0.8. What would be the effect of a 500 increase in taxes once all the rounds of the multiplier process are complete?
The multiplier is given as 1/MPS, and MPS + MPC = 1. Given that MPC = 0.8, MPS = 0.2. Hence the multiplier is 1/0.2 = 5. The effect of a 500 increase in taxes will be 5*500 = 2500 fall in equilibrium output.
20. Assume the government cuts its purchases by $150 billion. As a result, the budget deficit is reduced by $40 billion, private domestic saving decreases by $10 billion, disposable personal income decreases ...
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