Chapter 11 exercises

Chapter 11 exercises - *4.2 An increase in the tax rate...

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Chapter 11 review 1.1 The income-expenditure model is most appropriate for short-run analysis 1.2 equilibrium output occurs where production equals planned expenditures 1.3 if output is currently higher than planned expenditures, inventories are increasing 1.4 At any point onf the 45 degree line, planned expenditures equals output 2.1 The slope of the consumption function is called Marginal Propensity to Consume (MPC) 2.2An increase in autonomous consumption will shift the consumption function upward. 2.3 If housing prices fall, you would expect the consumption function to shift downwards 3.1 In our simple model, if C= 100 + 0.8y, and I =50, equilibrium output will be 4.1 tax multiplier is smaller than government spending multiplier
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Unformatted text preview: *4.2 An increase in the tax rate will increase the government spending multiplier (the more negative, the bigger? or the more negative, the smaller?) 4.3 Economic fluctuations have stabled since WWII. An increase in government spending will increase total planned expenditures for goods and services. Cutting taxes will increase the after-tax income of consumers and will also lead to an increase in planned expenditures for goods and services policy makers need to take into account the multiplier for government spending and taxes as they develop policies 4.4 An increase in both government spending and taxes by the same amount GDP Raising the tax rate lowers the MPC adjusted for taxes....
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