What is the initial effect of the tax reduction on demand

Reference no: EM13239374

Suppose the government reduces taxes by $20 billion, that there is no crowding out, and that the marginal propensity to consume is 3/4.
a) What is the initial effect of the tax reduction on aggregate demand?
b) What additional effects follows this initial effect? What is the total effect of the tax cut on aggregate demand?
c) How does the total effect of this tax cut compare to the total effect of a 20 billion increase in government purchases? Why?
d) Based on your answer in part c), can you think of a way in which the government can increase aggregate demand without changing the government's budget deficit?

Reference no: EM13239374

Questions Cloud

How far should you place the lens from the slide : A slide projector needs to create a 97 cm high image of a 2.0 cm tall slide, How far should you place the lens from the slide

A potassium hydroxide solution with an initial concentration : What is the final concentration (in M) of 19.5 mL potassium hydroxide solution with an initial concentration of 1.85 M which is diluted with 16.8 mL of solvent? Assume the volumes are additive.

Determine the buyers optimal acceptance strategy : Consider a bilateral bargaining situation, in which both the seller's cost c and the buyer's valuation v are distributed uniformly on [0, 1]. The buyer and seller play a trading game, in which the rules are as follows.

Explain what volume of water must be added to solution : What volume (in mL) of water must be added to a 1.96 M solution of potassium hydroxide to make a 50.8 mL of a 0.625 M solution? Assume the volumes are additive.

What is the initial effect of the tax reduction on demand : Suppose the government reduces taxes by $20 billion, that there is no crowding out, and that the marginal propensity to consume is 3/4. a) What is the initial effect of the tax reduction on aggregate demand

Should female circumcision be allowed in africa for cultural : Should female circumcision be allowed in Africa for cultural and social reasons ? Should female circumcision be viewd as violation of womens's right?

What happens to the firms average total cost curve : a firm uses two inputs, capital and labor. in the short run, the firm cannot adjust amount of capital it is using, but it can adjust the size of its workforce. What happens to the firm's average total cost curve, the average variable cost curve

Explain what volume of solution of iron chloride can be made : What volume (in mL) of 0.657 M solution of iron(III) chloride can be made from 52.3 mL of a 1.89 M solution? Assume the volumes are additive.

Determine the economic profits or losses : Harvey wanted to start his own business so he quit his job at Winona State University where he earned $98,000 a year. He figured his entrepreneurial talent to be worth $15,000 a year.

User Account

All Pages