How much should government spending change

Assignment Help Macroeconomics
Reference no: EM131137968

In a certain economy in 2006, consumption was described by relationship C = C0 + MPC (Y-T), with the consumption function intercept equal to 100 and the spending multiplier equal to 5. Investment was 300 and government spending on final goods and services was equal to 100. Also, the government budget had a surplus of 100. Net exports were zero.

Suppose that the economy falls into a recession and that policymakers estimate that the output gap is 100. The country's policymakers decide to use Keynesian demand management policy to try to get to full employment. How much should government spending change?
Note: Ignore the crowding-out effect.

• Increase government spending by 20.
• Increase government spending by 80.
• Increase government spending by 100.
• Increase government spending by 50.

Reference no: EM131137968

Questions Cloud

Maximum error if we use the observed sample proportion : With reference to Exercise 38, what can we say with 99% confidence about the maximum error if we use the observed sample proportion as an estimate of the proportion of all shoppers in the population sampled who use coupons?
Interval for the corresponding true proportion : With reference to Exercise 40, what can we say with 95% confidence about the maximum error if we use the observed sample proportion as an estimate of the corresponding true proportion?
What is the system function of the overall cascade system : Draw the signal flow graph of a transposed direct form II implementation of this system.
How the business cycle affects supply and demand : As a manager, it is important to understand how the business cycle affects supply and demand, prices, and how economic shocks will impact your company's markets, supply chain, and financing.
How much should government spending change : he country's policymakers decide to use Keynesian demand management policy to try to get to full employment. How much should government spending change?
Draw a flow graph that will implement this system : This implementation is sometimes called the coupled form oscillator, since, when the input is excited by an impulse, the outputs are sinusoidal.
Explain how louis xiv used the various arts : Explain how Louis XIV used the various arts and his motives for doing so. Briefly, identify one example of a modern political leader approaching the arts this way.
Suffered moderate to severe damage to their voices : In a random sample of 120 cheerleaders, 54 had suffered moderate to severe damage to their voices. With 90% confidence, what can we say about the maximum error if we use the sample proportion 54/120 = 0.45 as an estimate of the true proportion of ..
Moderate to severe damage to their voices : In a random sample of 120 cheerleaders, 54 had suffered moderate to severe damage to their voices. With 90% confidence, what can we say about the maximum error if we use the sample proportion 54/120 = 0.45 as an estimate of the true proportion of ..

Reviews

Write a Review

Macroeconomics Questions & Answers

  Inflation targeting be a good policy

Why might it be difficult for the Fed to formally adopt inflation targeting?  Would inflation targeting be a good policy for the Fed in the present economic environment

  In using the taylor rule

In using the Taylor Rule as a guideline for monetary policy, what are the pros and cons of using forecasted values of inflation and output rather than observed values of these variables?

  Describe the present economic crisis situation in europe

Describe the present economic crisis situation in Europe.  Why has it been so difficult for the Europeans to find a solution to this problem?   Comment on what implications the crisis may have for the rest of the world if Europeans are not able to ag..

  Long-term federal government budget problems

Question:. Explain why there are long-term Federal government budget problems. Explain why the base-line forecast of the CBO is misleading.

  Derive and compare demand curve

Question based on Derive and compare demand curve,  Derive Ambrose's demand function for peanuts. How does it compare with Johnny's demand curve for peanuts?

  Problem based on utility function

Problem based on  Utility Function - Problem,  Answer and explain the following using a diagram which is completely labeled.

  Laffer curve : tax rate and tax revenue

Question based on Laffer Curve : Tax Rate and Tax Revenue,  Do raising tax rates necessarily raise tax revenue? What factors affect how tax revenue changes when tax rates change?

  Problem - income elasticity of demand

Problem - Income Elasticity of Demand,  Interpret the following Income Elasticities of Demand (YED) values for the following and state if the good is normal or inferior; YED= +0.5 and YED= -2.5

  Positive balance of payment

Question Positive Balance of Payment: "Things will look good for the US if we could just get to where we are consistently running a positive Balance of Payments."

  Effect of recession on the investment curve

Comment on the effect of a recession on the investment curve (only) and on the level of savings, investment, and the equilibrium real interest rate in the financial crisis that hits United States first starting in fall 2007.

  Affect of falling domestic investment on trade surplus and

How will a fall in domestic investment affect the trade surplus and net capital outflows in the domestic economy, the trade deficit and capital inflows in the rest of the world.

  Crises in the banking sector and bank run

Banking crises crisis decreases depositors' confidence in the banking system. What would be the effect of a rumor about a banking crisis on checkable deposits in such a country?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd