MacroEconomics HELP!

posted by .

I just need a little help on a few questions:

- Why does a tax cut have a smaller multiplier than a hike in government spending if its the same amount?

- Federal tax drops from 20 to 30 percent. Due to that income increases from 600BLN to 800BLN, logical explaination is that workers have increased their work efforts. Would this be a movement along the downward sloping or upward sloping Laffer Curve? Why?

- Explain the theory that crowding out can weaken our nullify the effect of expansionary fiscal policy finaced by federal government borrowing.

1) Because of the first round effects. Initially, a $100 of government spending raises GNP by $100. (Y=C+I+G). However with taxes, with a $100 decrease in taxes, some goes into consumption, some to savings. We assume that consumption increases by mpc*100 and savings by (1.-mpc)*100.

2) "Federal tax DROPS from 20 to 30 percent" Hmmmmmm, did you mean from 30 to 20 percent? In that case, you would be on the upward slopint, left-of-peak portion of the Laffer Curve.

3) When govt borrows, demand for loanable fund rises (government uses a larger portion of the pool of loanable money), which causes interest rates to rise, causing private investment to fall. Government spending crowded out private investment.

Respond to this Question

First Name
School Subject
Your Answer

Similar Questions

  1. Economics

    Explain the difference between the government purchases multiplier and the net tax multiplier. If the MPC falls, what happens to the tax multiplier?
  2. Macroeconomics

    If your are in a first-year macro economics course then... 1) yes government purchases can increase total income. 2) cutting taxes could achieve the same result, 3) But the tax cut would need to be larger because the tax multiplier …
  3. Taxes on level of income

    The effect of a decline in taxes on the level of income will differ somewhat from an increase in government expenditures of the same amount because: a. tax declines tend to be more expansionary b. households may not spend all of an …
  4. Economics

    it is felt gdp needs to increase by 700 in order to reach a full employment level by how much must government change taxes if they intend to increase spending on national defence by 120?
  5. government(taxes)

    I am looking for a list of California state taxes. So far this all I have: 1) Sales Tax 2) Trash tax 3) Electricity tax 4) State income tax 5) Gasoline tax 6) Property tax 7) Federal telephone excise tax 8) Excise tax 9) social security …
  6. Macroeconomics

    Why is the tax multiplier smaller than the government spending multiplier?
  7. macroeconomics

    Increased government purchases, with taxes held constant, can eliminate a contractionary gap. How could a tax cut achieve the same result?
  8. economics

    How could a tax cut achieve the same result?
  9. Macroeconomics

    (Simple Spending Multiplier) Suppose that the MPC is 0.8, while investment, government purchases, and net exports sum to $500 billion. Suppose also that the government budget is in balance. a. What is the sum of saving and net taxes …
  10. Math

    A Gallup poll asked two questions: 1. Do you favor a tax cut or “increased spending on other government programs”?

More Similar Questions