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Chapter 13: Q.b - For Critical Thinking (page 291)

Based on Schwinn's conclusions, is the government likely to be able to boost real GDP with an increase in government spending if it has raised and lowered its expenditures a number of times in previous months? Explain your reasoning.

Short Answer

Expert verified

If the economy is in a downturn, and the public authority can get from the private section, then it can go about as an expansionary monetary game plan to help the general financial turn of events.

Step by step solution

01

introduction

The extended government spending might have a multiplier effect. If organization spending makes the jobless get occupations, by then they will have more compensation to spend inciting a further augmentation in complete interest.

02

explanation

If the economy is close as far as possible, higher government spending can incite swarming out. This is the place where the assembly burns through even more. Anyway, it has the effect of reducing private division spending. Assuming the economy is close as far as possible, by then higher government spending might cause inflationary loads and little augmentation in real GDP. If the economy is in a downturn, and the public authority can get from the private section, then it can go about as an expansionary monetary game plan to help the general financial turn of events.

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Most popular questions from this chapter

Determine whether each of the following is an example of discretionary fiscal policy action.

a. A recession occurs, and government-funded unemployment compensation is paid to laid-off workers.

b. Congress votes to fund a new jobs program designed to pat unemployed workers to work.

c. The Federal Reserve decides to reduce the quantity of money in circulation in an effort to slow inflation.

d. Under powers authorized by an act of Congress, the president decides to authorize an emergency release of funds for spending programs intended to head off economic crises.

Recall that the Keynesian spending multiplier equals 1 /(1-M P C). Suppose that in Figure 13-4, the MPC is equal to 0.9. In addition, the amount of the horizontal leftward shift from AD2 to AD3 caused by a crowding-out effect on planned investment spending was 0.5\( trillion, or \) 500 billion. How much investment spending was crowded out?

1. How does unemployment compensation function as an automatic stabilizer?

Consider the accompanying diagram, in which the current short-run equilibrium is at point A, and answer the questions that follow:

a. What type of gap exists at point A?

b. If the marginal propensity to consume equals 0.75, what change in government spending financed by borrowing from the private sector could eliminate the gap identified in part (a)? Explain.

Assume that equilibrium real GDP is \( 18.2 trillion and full-employment equilibrium (F E) is \) 18.55 trillion. The marginal propensity to save is 17. Answer the questions using the data in the following graph.

a. What is the marginal propensity to consume?

b. By how much must new investment or government spending increase to bring the economy up to full employment?

c. By how much must government cut personal taxes to stimulate the economy to the full employment equilibrium?
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