ECON 295 Chapter Notes - Chapter 22: Fiscal Policy, Expenditure Function, Stabilization Policy

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fuchsiagnu85

12 Apr 2017

School

McGill University

Department

Economics

Course

ECON 295

Professor

Mayssun El- Attar Vilalta

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Document Summary

Chapter22 adding government and trade to the simple macro model. Fiscal policy: the use of the government"s tax and spending policies. Desired government purchases are part of aggregate desired expenditure. Transfer payments the other part of government spending also affects desired aggregate expenditure, but only indirectly through the effect these transfers have on households" disposable income. Assumption: the level of government purchases is autonomous with respect to the level of national income. Net taxes (t): total tax revenue received by the government minus total transfer payments made by the government t. Net tax revenues vary directly with the level of national income, but the tax rate is an autonomous policy variable. Net tax rate (marginal propensity to tax): the increase in net tax revenue generated when national income rises by one dollar. The budget balance is the difference between total government revenue and total government expenditure; equivalently, it equals net tax revenue minus government purchases t g.

Related Questions

Which of the following statements is not correct?

Select one:

a. An increase in government spending raises the equilibrium level of income by a multiple of the original spending increase.

b. Government spending is part of fiscal policy.

c. A decline in government spending brings about a contraction in the economy.

d. Government spending is a means to close a recessionary gap.

e. An increase in government spending shifts the AD curve downward by a fraction of the rise in government spending.

Which of the following was not a cause of the U.S. budget deficits in the 1980s?

Select one:

a. Recessions in the early 1980s

b. A substantial increase in government spending

c. Expansion of existing government programs

d. A substantial decrease in tax rates

e. A relatively constant level of taxation

Which of the following does not qualify as an automatic stabilizer?

Select one:

a. Proportional income taxes

b. Food stamps

c. Welfare payments

d. Progressive income taxes

e. Unemployment compensation

Income taxes affect aggregate demand

Select one:

a. indirectly by changing consumption.

b. indirectly by changing investment spending.

c. indirectly by changing net exports.

d. directly by changing disposable income.

e. directly through government spending.

Which of the following constitutes a direct tax?

Select one:

a. Personal income taxes

b. Sales taxes

c. Excise taxes

d. Trade tariffs

e. Value-added taxes

apricotcoyote943

On the planet Omicron Persei 8, government spending is $1000, net taxes are $1200, and planned investment is $1400. Consumers spend according to the equation C = 100 + 0.8Yd, where Yd represents disposable income. Given this information, fill out the table below to determine which of the output levels represents a macroeconomic equilibrium, then answer the questions that follow. Output (Income) Y Net Taxes T Disposable Income Yd Consumption C Planned Investment I Government Purchases G Planned Aggregate Expenditure AE Unplanned Inventory Change 6200 1200 5000 3850 1400 1000 6250 -50 6700 1200 5500 4225 1400 1000 6625 75 7200 1200 6000 4600 1400 1000 7000 200 7700 1200 6500 4975 1400 1000 7375 325 8200 1200 7000 5350 1400 1000 7750 450

An a. Which level of output is a macroeconomic equilibrium? There is no level of equilibrium based on inventory levels.

b. Is the government budget balanced, in deficit, or surplus, and by how much? Since the government is spending less than it is collecting in taxes, we are showing a surplus.

c. Find the marginal propensity to consume, and the marginal propensity to save. d. Find the government spending multiplier. If the government wanted to increase the equilibrium level of income by $1,000, how much would it have to increase government purchases? e. Find the tax multiplier. If net taxes were lowered by $100, what effect would it have on the equilibrium level of income? Give a specific numerical answer.

cerisewallaby167

Assume that the equations below describe the expenditures within a particular macroeconomy and that these equations conform to the assumptions we've made in the lecture regarding the fixed price level Aggregate Expenditure model. All values for expenditure and income are dollar amounts, but for simplicity, we've dropped the $ below.

C = 0.8(DI) + 1000	C = Consumption expenditure, DI = Disposable Income
I = 2000	I = Investment expenditure
G = 1000	G = government expenditure
X = 1600	X = spending on exports
M = 1800	M = spending on imports
DI = Y - T	Y = real GDP, T = tax revenues/>
T = 1000
Yp = 12000	Yp = Potential GDP

Given the equations above, we can describe the GDP, government budget, and net exports in this economy. Select three characteristics from the list below which accurately describe this economy. Note that there is no partial credit on this question. I.e., your answer will either be all correct, or all wrong.

	a.	inflationary gap
	b.	recessionary gap
	c.	no output gap
	d.	government budget surplus
	e.	government budget deficit
	f.	balanced government budget
	g.	trade deficit
	h.	trade surplus
	i.	net exports of zero

pucearmadillo585

ECON 295 Chapter Notes - Chapter 22: Fiscal Policy, Expenditure Function, Stabilization Policy

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