--%>
Assignment Help - homework help

Changes in equilibrium GDP caused by government

Refer to columns 1 and columns 6 of the tabular data described below. Suppose that all taxes are personal taxes and that government spending does not induce a shift in the private aggregate expenditures schedule. Calculate and describe the changes in equilibrium GDP caused by the addition of government.

 

2365_Incorporate government.png

E

Expert

Verified

The addition of $20 billion of government expenditures and $20 billion of personal taxes raise equilibrium GDP from $350 to $370 billion. The $20 billion rise in G raises equilibrium GDP through $100 billion (= $20 billion x the multiplier of 5); the $20 billion rise in T drop consumption by $16 billion at every level. (= $20 billion x the MPC of .8). This $16 billion decline in turn decreases equilibrium GDP by $80 billion ($16 billion x multiplier of 5).  The overall change from comprising balanced government spending and taxes is $20 billion (= $100 billion - $80 billion).

   Related Questions in Finance Basics

  • Q : Depict the slope of the line Normal 0

    Normal 0 false false

  • Q : Assignments i want to write final state

    i want to write final state report. My state is Texas. You can use the resources that i attached, also you can use another resources to cover the outlines.

    		•
  • Q : Describe the risk-return relationship

    Describe the risk-return relationship.The relationship among risk and required rate of return is term as the risk–return relationship.  This is a positive relationship since the more risk assumed, the higher the required rate of retur

    		•
  • Q : Can a corporation contain too much

    Can a corporation contain too much working capital? Describe. A firm can contain too much working capital if this is losing the chance to invest in high returning fixed assets and if this goes beyond the amount of working capital required for r

    		•
  • Q : Compare diversifiable and non

    Compare diversifiable and non diversifiable risk. Which do you think is more significant to financial managers within a business firms?Diversifiable risk can be dealt along with by, of course, diversifying. Generally non diversifiable risk is co

    		•
  • Q : What is Sunset Clause Sunset Clause :

    Sunset Clause: The language contained in a law which states the expiration (termination) date for that statute.

    		•
  • Q : What is Expenditure Authority

    Expenditure Authority: The authorization to make expenditure (generally by a budget act appropriation, provisional language or some other legislation).

    		•
  • Q : Explain Merger Merger : A merger takes

    Merger: A merger takes place whenever two companies unite to form a single company. This is very alike to an acquisition or takeover, apart from that the existing stock-holders of both companies comprised retain a shared interest in the latest corpora

    		•
  • Q : What is a Category Category: A grouping

    Category: A grouping of related kinds of expenditures, like Personal Services, Reimbursements, Operating Expenses and Equipment, Special Items of Expense, Un-classified, Local Costs, Capital Costs, and inner Cost Recovery.

    		•
  • Q : Describe Modigliani and Miller theory

    Describe Modigliani and Miller theory of dividends? Describe. The Modigliani-Miller theory of dividends says which dividend theory is irrelevant. They claim that it is the income generated by assets that is significant, not how funds are distr

    		•