Question

In: Economics

Suppose the following list of events describes all of the economic activity resulting from an increase...

Suppose the following list of events describes all of the economic activity resulting from an increase in government spending. Suppose that at each step after the initial one, the marginal propensity to consume is 0.88 and there are no taxes.

Step 0. The government spends $4500 on meat to host a very large dinner for foreign diplomats.

Step A. The butcher takes the income earned by selling the meat, saves some, and spends the rest on a wedding cake for his daughter.

Step B. The baker who produced the wedding cake saves some of her earnings and uses the rest to purchase beautiful candlesticks as gifts for all of her friends.

Step C. The local candlestick maker saves some of his revenue for retirement and spends the rest on building materials to improve his house.

Instructions: Modify the settings in the interactive tool to represent this event. Then click "Spending Rounds" and use the table to answer the following questions. Round answers to the nearest cent, if necessary.

How much does the butcher earn for selling the meat? $ ________

How much does the candlestick maker spend on cake? $ _______

Solutions

Expert Solution

given that

The government has spend $4,500 on meat.

This meat was sold by butcher.

So, butcher has earned income of $4,500.

Tax rate = 0%

Income after tax = $4,500 - $0 = $4,500

MPC = 0.88

Amount spent on consumption = $4,500 * 0.88 = $3,960

The butcher has spent the amount on wedding cake.

So, this spending by butcher will become income of the baker.

Income of the baker = $3,960

Tax rate = 0%

Income after tax = $3,960 - $0 = $3,960

MPC = 0.88

Amount spent on consumption = $3,960 * 0.88 = $3,484.8

The baker has spent the amount on candlesticks.

So, this spending by baker will become income of the candlestick maker.

Income of the candlestick maker = $3,484.8

Tax rate = 0%

Income after tax =$3,484.8 - $0 = $3,484.8

MPC = 0.88

Amount spent on consumption = $3,484.8 * 0.88 = $3,066.624

Thus,

The candlestick maker earn $3,484.8 for selling the candlesticks.

The candlestick maker will spend $3,066.624 on building materials.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Which of the following best describes valence? Select one: a. It is the consequence resulting from...

Which of the following best describes valence? Select one: a. It is the consequence resulting from performance or lack of performance. b. It is the perceived likelihood that employees' efforts will enable them to attain valuable goals. c. It is the perceived likelihood that performance will be followed by a particular outcome. d. It is the value the expected outcome holds for the person contemplating it.

1) In a small open economy, the increase in aggregate demand resulting from an increase in...

1) In a small open economy, the increase in aggregate demand resulting from an increase in government spending is _____ if the exchange rate is ______ than if it is _______ . A) larger, flexible, fixed B) smaller, fixed, flexible C )always zero D) larger, fixed, flexible 2) In a small open economy, the increase in aggregate demand resulting from an increase in the money supply is _____ if the exchange rate is ______ than if it is _______ ....

The following is a list of economic events: i) Purchased inventory on account ii) Paid dividends...

The following is a list of economic events: i) Purchased inventory on account ii) Paid dividends at the end of the year iii) Received cash in payment for services iv) Issued shares (contributed equity) for cash v) Paid rent in cash vi) Received a bill for electricity used vii) Bought equipment for cash viii) Billed customers for services to make consistent with other answer formats change to: a) indicate the accounts that would be affected by each transaction b) Indicate...

How do the all events and economic performance requirement apply to the following transactions by an...

How do the all events and economic performance requirement apply to the following transactions by an accrual basis taxpayer? a. The company guarantees its products for six months. At the end of 2018, customers had made valid claims for $600,000 that were not paid until 2019. Also, the company estimates that another $400,000 in claims from 2018 sales will be filed and paid in 2019. b. The accrual basis taxpayer reported $200,000 in corporate taxable income for 2018. The state...

Select all of the following processes or events that INCREASE during untreated or poorly managed diabetic...

Select all of the following processes or events that INCREASE during untreated or poorly managed diabetic ketoacidosis. options: 1 fatty acid oxidation, gluconeogenesis & ketogenesis in liver. 2 reliance on fatty acids & proteins as primary fuels throughout the body. 3 lipolysis & fatty acid release from adipose. 4 plasma & urine [glucose]. 5 renal H+ excretion & HCO3- reabsorption as a compensation for plasma pH imbalance. 6 plasma pH. 7 respiration depth & rate as a compensation for plasma...

Suppose that a pandemic disrupted normal economic activity in all countries. Thanks to negotiations oil exporting...

Suppose that a pandemic disrupted normal economic activity in all countries. Thanks to negotiations oil exporting countries have managed to keep the supply of oil at its pre-pandemic level, however pandemic led to a change in oil prices. Suppose further that a successful vaccine has been found rapidly within a year, which in turn helped everything except the oil prices return to almost normal. That is to say that the impact of pandemic on oil prices has lasted longer than...

Suppose that a pandemic disrupted normal economic activity in all countries. Thanks to negotiations oil exporting...

Select the term from the list provided that best describes each of the following descriptions or...

Select the term from the list provided that best describes each of the following descriptions or definitions. Your Answer Description or Definition Term A. The sales volume that equates total revenue with total costs 1. Break-even point B. A strategy that sets the selling price at an amount sufficient to recover a specified amount or percentage of profit based on the product's cost 2. Contribution margin per unit C. (Total sales - Total variable costs) divided by Number of units...

The list below describes (in no particular order) some early events of the pre-embryonic period. 1...

The list below describes (in no particular order) some early events of the pre-embryonic period. 1 – Cortical reaction 2 – Blastocoel forms 3 – Yolk sac and amnion start to form 4 – Dichorionic-Diamnionic twins 5 – Four celled pre-embryo 6 – Human chorionic gonadotropin present in urine The 6 steps above are not in the correct order.

list all the esterification agent you know . and arrange them by reaction activity from strong...

list all the esterification agent you know . and arrange them by reaction activity from strong to weak

Subjects