--%>
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 : Describe the effect of stock dividends

    Describe the effect of stock (not cash) dividends and stock splits onto the market price of common stock? Why do corporations state stock splits and stock dividends? Stock splits & stock dividends decrease the price per share of the common

    		•
  • Q : Semiannua compounding It is now January

    It is now January 1. You plan to make a total of 5 deposits of $600 each, one every 6 months, with the first payment being made today. The bank pays a nominal interest rate of 14% but uses semiannual compounding. You plan to leave the money in the bank for 10 years. How much will be in your account

    		•
  • Q : Advantages of corporation in countries

    Describe some primary advantages while a corporation has operations in countries other than its home country? Explain risks? Foreign operations may decrease a company's labour or material costs, and may raise its sales. Risks comprise possible

    		•
  • Q : Firm risk of any capital budgeting

    Describe how to measure the firm risk of any capital budgeting project. The firm risk of a capital budgeting project measures the effect of adding a new project to the present projects of the firm.

    		•
  • Q : Change in supply of money Normal 0

    Normal 0 false false

  • Q : Purchasing power parity of US and

    Under what condition would the U.S. dollar and the Canadian dollar said to be have achieved purchasing power parity? The U.S. dollar and the Canadian dollar would be assumed to have achieved purchasing power parity while the exchange rate reflec

    		•
  • Q : Describe the terminal value calculation

    Describe the terminal value calculation at the ending of the forecast period. Why is it crucial? The firm which business operation is being valued is not accepted to suddenly cease operating at the ending of the discrete forecasting period, how

    		•
  • Q : What is Statute Statute: It is a

    Statute: It is a written law enacted by the Legislature and signed by the Governor or a vetoed bill overridden by a 2/3 vote of both houses), generally referred to by its chapter number and the year in which it is passed. The statutes which modify a s

    		•
  • Q : Fixed Income I need solution by Tuesday

    I need solution by Tuesday evening March 18, 6 pm EST

    		•
  • Q : Financing costs in capital budgeting

    How are financing costs incorporated generally into the capital budgeting analysis procedure? Usually financing costs are captured in the discount or hurdle rate while doing NPV or IRR analysis. Usually the operating cash flows do not comprise

    		•