Which program has the least damaging effect on gdp

Assignment Help Econometrics

Reference no: EM13199612

Consider the following model of a closed economy (Smallville):

MPC = 0.8 - 0.01Y (marginal propensity to consume)
C = MPC x YD (consumption function)
YD = (Y - T) (disposable income)
I = 500 (investment spending)
G = 1,500 (government spending)
Y = AD (equilibrium condition)
T = 1,200 (taxes - non-income)

You can see that Smallville is running a budget deficit. Two policy programs are proposed: (1) eliminate the deficit by cutting government spending and (2) eliminate the deficit but raising taxes. Which program has the least damaging effect on GDP?

Reference no: EM13199612

Questions Cloud

Give example of a fiscal policy : An example of a fiscal policy Lowering the interest rate on loans to corporations, Increasing taxes to pay for greater military spending,are they true or fslse.

Describe the diamond-water paradox and the solution : Describe the Diamond-Water paradox and the solution. Explain why price is greater than marginal revenue for a single-price monopolist and how this differs from perfect competition.

How does a laissez faire economy make the decision : How does a laissez faire economy make the decision about what goods and services will be produced Lawmakers in government vote on what will be produced or else.

Which policy program promotes economic stability : What is the multiplier associated with each policy program (i.e. the multiplier AFTER the program is implemented - just the number please) Which policy program promotes economic stability. MPC = 0.8 - 0.01Y (marginal propensity to consume).

Which program has the least damaging effect on gdp : Two policy programs are proposed: (1) eliminate the deficit by cutting government spending and (2) eliminate the deficit but raising taxes. Which program has the least damaging effect on GDP

Determine what is the value of the multiplier : Consider the following model of a closed economy (Smallville): MPC = 0.8 - 0.01Y (marginal propensity to consume) C = MPC x YD (consumption function) YD = (Y - T) (disposable income) I = 500 (investment spending) G = 1,500 (government spending)

What is the cpi : The table below shows the market basket quantities and prices for the base year year 1.Base year 1 Price in price Quantity base year yr 2 Product.

Find the equilibrium level of real gdp for smallville : Find the equilibrium level of real GDP for Smallville. Note: you will have to solve a quadratic equation - and GDP cannot be negative, for obvious reasons. Y = AD (equilibrium condition) T = 1,200 (taxes - non-income)

What can we derive from the fact in terms of crowdedness : The crowdedness of the city is fixed, and has no relationship to the distance from the central business district. In other words, as we go further and further from the central business district, the level of crowdedness of the apartments remain un..

User Account

All Pages