--%>

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 : Describe depreciation expense Describe

    Describe depreciation expense as it seems on the income statement.  Accounting depreciation is the allocation of asset's primary cost over time. Depreciation cost on an income statement is the amount of the asset=s initial cost allocated to

  • Q : Use of obtainable resources Normal 0

    Normal 0 false false

  • Q : Define Executive Order Executive Order

    Executive Order (EO): It is a budget document, issued by the Department of Finance, asking for the State Controller’s Office to make an adjustment in their accounts. The adjustments are usually authorized by the Budget Act provision language, Bu

  • Q : Clarify retained earnings and its

    Clarify retained earnings?  Describe importance of this? Retained earnings represent the sum of all the earnings available to common stockholders of a business at the time of its entire history, minus the tota

  • Q : Assignments i want to write final

    i want to write final report about my state Texas. using the resources that i attached and the other resources to cover the outlines.

  • Q : Explain characteristics of an efficient

    Explain characteristics of an efficient market?Market efficiency refers to the speed, ease and cost of trading securities. Within an efficient market, securities can be traded quickly, easily and at low cost. Markets lacking these qualities are

  • Q : Reimbursement Warrant or Revenue

    Reimbursement Warrant (or Revenue Anticipation Warrant): A warrant which has been sold by the State Controller’s Office, as an outcome of a cash shortage in th

  • Q : What is Budget Change Proposal Budget

    Budget Change Proposal (BCP): It is a proposal to modify the level of service or funding sources for activities sanctioned by the Legislature, suggest new program activities not presently authorized, or to remove existing programs.

    Q : Describe GATT and its goal Describe

    Describe GATT, and its goal? GATT is the General Agreement on Tariffs & Trade. This is a treaty that seeks to decrease trade barriers among participant nations.

  • Q : Explain Administration Program Costs

    Administration Program Costs: It is the indirect cost of a program, usually a share of the costs of the administrative units serving the whole department (example, the Director's Office, Personnel, Legal, Accounting, and Business Serv