Percy is a rich boy whose parents supply him with every conceivable necessity of life. While still a minor, Percy buys a coat on
2 answers:
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Answer:
a. The government needs to increase spending by $0.45 billion and decrease taxes by $0.5 billion.
b. The real GDP will fall short of potential GDP by $3.6 billion.
c. The real GDP will fall short of potential GDP by $4 billion.
d. If government overestimates MPC change in spending or taxes will be too small.
Explanation:
The GDP gap is $4.5 billion.
a. The marginal propensity to consume is 0.90.
Government spending multiplier
=
=
= 10
The government needs to increase spending by
=
=
= $0.45 billion
Tax multiplier
=
=
= -9
The government needs to decrease taxes
=
=
= $0.5 billion
b. The marginal propensity to consume is 0.50.
Government spending multiplier
=
=
= 2
If the government increases spending by $0.45 billion,
The real GDP will increase by
=
=
= $0.9 billion
The real GDP will fall short of potential GDP by
= $4.5 billion - $0.9 billion
= $3.6 billion
c. Tax multiplier
=
=
= -1
If the government decreases taxes by $0.5 billion
The real GDP will increase by
=
= $0.5 billion
The real GDP will fall short of potential GDP by
= $4.5 billion - $0.5 billion
= $4 billion
d. If the government overestimates the value of the MPC, then its change in spending or taxes will be too small and real GDP will fall short of potential GDP.
Answer:
(in the graph)
Explanation:
The PPF will show how Mario can only do as much of pizza and pasta and there is a certain point at which producing additional units of pasta or pizza comes at the cost of resinging a unit of the other good.
The points over the line and below the lien are attainable.
While those above the frontier are unattainable for Mario's current factor disposition.
