bo Illustrate the impact of a $500 million increase in government spending by adjusting the graph. In the full Keynesian model, the marginal propensity to save (MPS) is 0.25. What is the resulting change in output? Output increases by $500 million x 1.33, or $666.6 million. Output increases by $2,000 million, or $2 billion. Output decreases by $500 million 1.33, or $666.6 million. Output decreases by $2,000 million, or $2 billion. (in millions of dollars) Aggregate expenditure AB=AI C+I+G+X-M
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- From March 2020 to March 2021, the US enacted three fiscal packages to stimulate the economy and support businesses and households following the dislocations of COVID19. The rationale for these temporary payments was based on the Keynesian consumption function, according to which an increase in income increases consumption spending and boosts the economy. The data shown in the chart on the next page for disposable income, with and without the stimulus payments, and personal consumption expenditures. While disposable income clearly rises substantially when the stimulus payments are included, personal consumption expenditures follows a different path, mimicking disposable income without the stimulus payments. Use economic theory to explain what is going on here, Billions of Dollars 22,000 Disposable Personal Income less Economic Impact Payments Disposable Personal Income with Economic impact Payments 20,000 Personal Consumption Expenditures 18,000 16,000 14,000 12,000 01 04 07 10 01 04…15. If the MPC is 3/4, what is the government spending multiplier in the simple Keynesian model?Illustrate the impact of a $500 million increase in government spending by adjusting the graph. In the full Keynesian model, the marginal propensity to save (MPS) is 0.25. Aggregate expenditure (in millions of dollars)Aggregate income = real GDP (in millions of dollars)AE = AIC+I+G+X−M What is the resulting change in output? Output decreases by $2,000 million, or $2 billion. Output increases by $500 million×1.33$500 million×1.33 , or $666.6 million. Output decreases by $500 million×1.33$500 million×1.33 , or $666.6 million. Output increases by $2,000 million, or $2 billion. If the government cut taxes by $500 million instead, what would be the resulting change in output? Output decreases by $1,500 million, or $1.5 billion. Output increases by $666.6 million. Output increases by $1,500 million, or $1.5 billion. Output decreases by $500 million×0.25$500 million×0.25 , or $125 million.
- Macmillan Learning What is the eventual effect on real GDP if the government increases its purchases of goods and services by $60,000? Assume the marginal propensity to consume (MPC) is 0.75. What is the eventual effect on real GDP if the government, instead of changing its spending, increases transfers by $60,000? Assume the MPC has not changed. An increase in government transfers or taxes, as opposed to an increase in government purchases of goods and services, will result in O no change to real GDP. O a smaller eventual effect on real GDP. a larger eventual effect on real GDP. O an identical eventual effect on real GDP.Give an example of a change in autonomous spending that took place during 2000-2010.Assume a closed economy in which, there is no government. If ouput (income) is 800,autonomous consumption is 100, and marginal propensity to consume is 0.70 in this economy.Then calculate the the amount of consumption spending?
- Suppose that the government increases its spending by 50$. If the MPC (marginal propensity to consume) in the economy is 0.5, then according to the Keynesian cross output will a. Increase by 70$ b. Decrease by 100 c. Increase by 100$ d. Not changeSuppose the marginal propensity to consume is 0.6. Use the Keynesian Cross model to predict the impact on equilibrium income of each of the following policies. State the direction of the change and give a formula for the size of the impact. a. an increase in government purchases of $100billion b. an increase in taxes of $100 billion c. a $100 billion increase in both government purchases and taxes?n the Keynesian cross model, assume that the consumption function is given by C = 110 + 0.75(Y - T). Planned investment is 300; government purchases is 350. Assume a balanced budget. a. Graph planned expenditure as a function of income.b. What is the equilibrium level of income?c. If government purchases increase to 400, what is the new equilibrium income? What is the multiplier for government purchases? Solve D and Ed. What level of government purchases is needed to achieve an income of 2,200? (Taxes remain unchanged.)e. What level of taxes is needed to achieve an income of 2,200? (Government purchases remain at 350.)
- In Keynesian 45 degree diagram, at the intersecting point between the line representing and the line representing and total spending of are exactly equal to national income or real GDP. This means that the amount that is bought is exactly equal to the amount that is actually produced. This is the level of output in this model, shown as Ye. What happens when real GDP produced is less than Ye? If the amount consumers, firms, government and foreign countries want to buy is than the quantity of real GDP, then there is insufficient output to satisfy total expenditure. On the other hand, if real GDP is greater than Ye, the amount that consumers and firms want is bought is than real GDP produced. Too many goods and services are being produced relative to total expenditure. With too much spending relative to output produced, firms' inventories are sold, thus providing firms with the signal to production, causing real GDP to to Ye. With too little spending relative to what is produced, firms…Keynesian View on the Government’s Role in the Economy: Explain how Keynes concluded that the government can often act as a third party when suppliers (or the private sector) and consumers (or households) are unable to find a way out of poor economic times. How is the multiplier enacted here?The current state in the economy are as follows; Autonomous Consumption: 9000, Marginal Propensity to Consume: 0.4, Investment: 10000, Government Spending: 30000, Net Exports: 5000, Income Tax rate: 25%. The government wishes to conduct an injection into the economy to achieve a 45000 increase in national income. Calculated the current equilibrium income in the economy The government increases spending by 30000. Does this achieve the desired increase of 45000? How much should the government increase its spending to achieve the 45000 increase in national income (to the nearest whole number)? (Hint: consider the what the multiplier in this economy is)