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    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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    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 ...

    Solution Summary

    The expert examines economic equilibrium policy. The GDP is computed.

    $2.19