a. Assume that Ajani did not buy a $30,000 car from Humbug because of the unexpected tax bill. If the MPC is .6, how much will Humbug reduce his spending from Tanaka?

b. Humbug’s drop in spending causes a chain reaction which is illustrative of the multiplier effect. Assuming that each person in the chain spends sixty percent of any change in income on the person next in the chain, how much would Gonzales’ income be reduced by Ajani’s cancelled $30,000 car purchase?

1. From the perspective of someone using aggregate-demand and aggregate supply analysis, what is the impact of a tax cut when the economy is operating above full employment. Is this a wise policy? Why or why not?

2. From your readings, what is meant by each of the following?

a) MPC

b) MPS

3. Explain briefly how spending can multiply, and then calculate the spending multiplier when the MPC is
a. 0.75   
b. 0.8       
c. 0.6    

pleas answer them by typing

<Why Australia's government debts and budget deficits are here to stay>

a) Using the AD-AS framework discussed in class, demonstrate the impacts of

spending on infrastructure and a tax cut on output and inflation in the short

run.

b) Also explain the likely impact of spending on infrastructure on output in the

long-run and show this on your AS-AD diagram.

c) Explain (using your own words) what would happen to unemployment and

output in the short run if job support payments (both Jobseeker and

Jobkeeper) were switched off.

1. During an ‘economic contraction’, why is it likely that the federal government budget will move into deficit?

2. Identify and discuss whether each of the following is: an expansionary fiscal policy; a contractionary fiscal policy; or not a fiscal policy.

i.   The personal income tax rate is lowered.

ii.   The government increases spending on defence due to a change in spending priorities.

iii.   The company income tax rate is lowered.

iv.   New South Wales builds a new tollway to expand employment and ease traffic congestion.

The relaxation of the FDA policy which allows pharmaceutical companies to advertise on television about their drugs and provide information on benefits of specific drugs by name without listing all the risks/side effects. Discuss how the change in FDA policy impact spending on DTCA in the pharmaceutical market. Do you think increased spending on DTCA is an important contributing factor to higher drug prices? Discuss at least two important arguments in favor and oppose to DTCA policy in the healthcare market.

1. Draw an AD-AS model depicting an economy with a recessionary gap in the short-run due to dramatic decline in net exports.
2. Assume the full potential real GDP in the economy is 20 and that actual real GDP is 10. If the multiplier is equal to 2 what amount of government spending would eliminate the recessionary gap? Depict the effect of an increase in government spending on your AD-AS graph.
3. If the multiplier is equal to 2, what is the marginal propensity to consume equal to? Describe the marginal propensity to consume.

Foreign direct investment includes portfolio investment. True False

Economic growth is measured as:

total output per year divided by the inflation rate.

the annual percentage change in real GDP.

total nominal GDP at the end of each year.

the percentage change in population growth per year.

the quarterly percentage change in nominal GDP.

According to the expenditures approach, gross domestic product represents the sum of consumption spending, government spending, net exports, and net investment.True False

Assume that a hypothetical economy with an MPC of 0.8 is experiencing severe recession. By how much would government spending have to rise to shift the aggregate demand curve rightward by $40 billion? How large a tax cut would be needed to achieve the same increase in aggregate demand? Determine one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt (i.e., maintaining the budget balance at its current value).

Assume the following set of equations describe the economy of Agriland:

Consumption = $100 billion + .6YD YD refers to disposable income

Investment = $90 billion

Government spending = $70 billion

Taxes = .25Y

Exports = $65 billion

Imports = 0.1Y

1. Calculate the equilibrium level of output for Agriland? (Show formula and calculations)

2. Calculate the multiplier for Agriland. (Show formula and calculations)

3. What is the impact on the equilibrium level of output in Agriland of an increase in government spending of $80 billion. (Show formula and calculations)