Consider a hypothetical closed economy in which households spend $0.60 of each additional dollar they earn and save the remaining $0.40.

The marginal propensity to consume (MPC) for this economy is   , and the spending multiplier for this economy is   .

Suppose the government in this economy decides to increase government purchases by $400 billion. The increase in government purchases will lead to an increase in income, generating an initial change in consumption equal to _________   . This increases income yet again, causing a second change in consumption equal to _______   . The total change in demand resulting from the initial change in government spending is _______.

For each of the following state whether the supply or demand for loanable funds is increasing or decreasing.

a. Individuals cut back on their travel and entertainment spending for fear of catching the coronavirus.

b. Businesses expect the recession to depress profits next year

c. New technological advances make electric cars cost competitive with internal combustion cars

d. Businesses delay their investment plans until after the November 2020 election.

e. There is political unrest in a foreign country

f. State and local governments increase spending to fight the coronavirus

Answer parts (a) and (b) of this question on redistribution in the context of the Tiebout model. Your answers should demonstrate an understanding of the Tiebout model, and describe the appropriate arguments regarding redistribution in both cases.

a. If the Tiebout model perfectly reflects reality, can redistributing funds from high-revenue, high spending communities to low revenue, low spending communities increase social efficiency? Why or why not?

b. If some of the assumptions of the Tiebout model fail to hold in the real world, can such redistribution increase social efficiency? Why or why not?

Suppose the federal government unexpectedly decreases its spending. With the aid of an aggregate demand-aggregate supply diagram, explain how this contractionary fiscal policy affects the price level, P, and total output, Y, in the short-run.

How does the economy adjust to this policy in the long-run?

What is the effect of this policy on P and Y in the long-run?

[Note: Assume that the economy is in a long-run equilibrium prior to the increase in government spending. Also assume that the short-run aggregate supply curve slopes up.]

In 1994 two researchers from the RAND Corporation in Santa Monica, California, studied the market for cocaine. They estimated the average price elasticity of demand for the demand for cocaine to be 0.5 in absolute value. At the time, the federal government was increasing its spending on law enforcement to keep cocaine from getting into the country. The goals were to decrease the use of cocaine due to the public health hazards and to lower the rate of drug-related crime.

Is it likely that the government's increasing its spending on law enforcement accomplished its goals? Explain your answer

A recession is often the result of what type(s) of economic disruption?

Check all that apply.

Fiscal policy is

Assume the economy is operating at potential GDP. In writing and in a graph, explain how each of the events below will affect the equilibrium price level, aggregate output, and the unemployment rate in the United States in the short-run. Be sure to analyze each event independently.

Congress passes a new budget that decreases taxes and increases government spending on infrastructure.

Due to higher interest rates, business firms decrease investment spending.

U.S. productivity declined for the third month in a row.

Due to the glut of oil on world markets, oil prices declined.

problem 3 (ii)

Michael consumes apples and pears. In year 1, apples cost $1 each, pears cost $2 each, Michael buys 4 apples and 2 pears in year 1. In year 2, apples cost $2 each and pears cost $1 each, and michael buys 2 apples and 4 pears.

Define the implicit price deflator as nominal spending divided by real spending; compute the deflator for each year. How does the deflator change from year 1 to year 2?

According to an NRF survey conducted by BIGresearch, the average family spends about $237 on electronics (computers, cell phones, etc.) in back-to-college spending per student. Suppose back-to-college family spending on electronics is normally distributed with a standard deviation of $54. If a family of a returning college student is randomly selected, what is the probability that:

(a) They spend less than $165 on back-to-college electronics?

(b) They spend more than $380 on back-to-college electronics?

(c) They spend between $130 and $180 on back-to-college electronics?

For each of the following, use an AD-AS diagram to show the short-run and long-run effects on output and inflation. Assume the economy starts in long-run equilibrium.

a. An increase in consumer confidence that leads to higher consumption spending.

b. A reduction in taxes.

c. An easing of monetary policy by the Fed (a downward shift in the policy reaction function).

d. Now, in addition to the increase in consumer spending, suppose that the economy experiences a favourable inflation shock (a sharp drop in oil price).

e. A war that raises government purchases