Econ101 HW2 - the money lost from the tax cut The action...

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Allison Cox #8698037 Econ 101 Professor Morgan Homework #2 Chapter 3 4. When unintended inventory is positive the economy is not in equilibrium and in order to return the firms will reduce production and try to sell the goods already available. In the other case when unintended inventory is negative the firms will try to produce more until they reach equilibrium. 5. The effect of the level of equilibrium real GDP with an increase in autonomous investment of $100 billion will be grater with a relatively high marginal propensity to consume because of the multiplier response to changes in income. 6. The government tries to stimulate the economy in two ways by increasing spending through taxes or by giving tax cuts. Both of these stimulate the economy but creates a deficit. The increase in output induces savings with the government spending which then finances the deficit with government bonds. With tax cuts, it induces savings with finance
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Unformatted text preview: the money lost from the tax cut. The action can also reduce a surplus. 7. The IS curve is a schedule that identifies the combinations of income and the interest rate at which the commodity market is in equilibrium. Everywhere along the IS curve the demand equals the supply. Anything that shifts the autonomous spending demand schedule will shift the IS curve in the same direction. 8. a. The IS curve will shift to the left if there is a decline in sales of agriculture to foreign countries because it is a decrease in net exports. b. The IS curve will shift to the left if there is a decline in the consumer confidence because demand will decrease. c. The IS curve will shift to the right because there is in increase in spending and therefore demand. d. The IS curve will shift to the left because of a decline in business confidence which will reduce demand. 10....
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