Assuming that there are no direct expenditure offsets to

Assignment Help Business Economics

Reference no: EM13243622

A government is currently operating with an annual budget deficit of $40 billion. The government has determined that:

Every $10 billion reduction in the amount of bonds it issues each year would reduce the market interest rate by 0.1 percentage point.
Every 0.1 percentage point change in the market interest rate generates a change in planned investment expenditures in the opposite direction equal to $5 billion. The marginal propensity to consume is 0.75.
To eliminate an inflationary gap and take into account the resulting change in the price level, the government must generate a net leftward shift in the aggregate demand curve equal to $40 billion.

Assuming that there are no direct expenditure offsets to fiscal policy, how much should the government increase taxes? Explain by giving appropriate reasons.

Reference no: EM13243622

Questions Cloud

Find the new theoretical resistance of the circuit : In experiment PH04a, for the resistors in parallel circuit configuration, if we added to the circuit two additional parallel legs with each leg having a single 50 Ohm resistor

Decision on new product introduction : Create a risk profile for EPC, how risky is EPC's best solution and suppose the CEO of EPC has reservations about your analysis of his key decision on new product introduction.

Identify a publicly held multinational company of your choic : Identify a publicly held multinational company of your choice. Research its filings to the SEC, particularly the 10-K and 10-Qs. Also, examine its annual report online. Then, answer the following questions

Explain a neutron produces a hydrogen-1 atom : Bombardment of boron-10 with a neutron produces a hydrogen-1 atom and another nuclide. What is this nuclide

Assuming that there are no direct expenditure offsets to : Assuming that there are no direct expenditure offsets to fiscal policy, how much should the government increase taxes? Explain by giving appropriate reasons.

Discuss within your learning team how and why surplus : Discuss within your Learning Team how and why the U.S.'s deficit, surplus and debt have an effect on the following

Explain radiation can pass through a cell with no damage : Which of the following statements regarding the possible effects of radiation on a cell is incorrect. Radiation can pass through a cell with no damage.

Explain benzyl alcohol and benzamide : In a flowchart, show how one can separate acetophenone, benzyl alcohol, and benzamide from each through acid/base extraction.

Sometimes market activities production buying and selling : Sometimes market activities (production, buying, and selling) have unintended positive or negative effects outside the market's scope.

User Account

All Pages