In the expenditure–output or Keynesian cross model, the equilibrium occurs where the aggregate expenditure line (AE line) crosses the 45° line. Given algebraic equations for two lines, the point where they cross can be calculated easily. Imagine an economy with the following characteristics.

Y = Real GDP or national income

C = Consumption = 50 + 0.8Y

I = Investment = 200

G = Government spending = 100

1. Calculate the equilibrium level of income (Y)
2. Suppose G increases to 125 what is the new equilibrium level of income?
3. What level of G is needed to achieve a target income of 2150?
4. Given an MPC of 0.56 and there was an increase in autonomous government spending by $400 Million. How will this affect the equilibrium national income?

Respond to the following prompt in a post with a minimum of 100 words, then comment on at least ONE other posts.

• Compare and contrast the use of government spending changes versus tax changes as a means of influencing the course of the economy. Is one or the other preferable in specific situations? Imagine for a moment that you have two roommates, who each have opposing viewpoints on nearly everything, including politics and economics. Taylor is adamant that the best way to manage the economy is through tax changes, while Morgan insists that it’s better to adjust the economy through government spending. What would a Neoclassical economist say? What would a Keynesian economist say? Which roommate do you agree with, and why?

Fiscal Policy

Respond to the following prompt in a post with a minimum of 100 words, then comment on at least ONE other posts.

• Compare and contrast the use of government spending changes versus tax changes as a means of influencing the course of the economy. Is one or the other preferable in specific situations? Imagine for a moment that you have two roommates, who each have opposing viewpoints on nearly everything, including politics and economics. Taylor is adamant that the best way to manage the economy is through tax changes, while Morgan insists that it’s better to adjust the economy through government spending. What would a Neoclassical economist say? What would a Keynesian economist say? Which roommate do you agree with, and why?

You have looked at the current financial statements for Reigle Homes, Co. The company has an EBIT of $2,850,000 this year. Depreciation, the increase in net working capital, and capital spending were $225,000, $90,000, and $415,000, respectively. You expect that over the next five years, EBIT will grow at 16 percent per year, depreciation and capital spending will grow at 21 percent per year, and NWC will grow at 11 percent per year. The company has $15,100,000 in debt and 345,000 shares outstanding. You believe that sales in five years will be $22,600,000 and the price-sales ratio will be 2.4. The company’s WACC is 8.5 percent and the tax rate is 21 percent. What is the price per share of the company's stock?

You have looked at the current financial statements for Reigle Homes, Co. The company has an EBIT of $2,850,000 this year. Depreciation, the increase in net working capital, and capital spending were $225,000, $90,000, and $415,000, respectively. You expect that over the next five years, EBIT will grow at 16 percent per year, depreciation and capital spending will grow at 21 percent per year, and NWC will grow at 11 percent per year. The company has $15,100,000 in debt and 345,000 shares outstanding. You believe that sales in five years will be $22,600,000 and the price-sales ratio will be 2.4. The company’s WACC is 8.5 percent and the tax rate is 21 percent. What is the price per share of the company's stock?

You have looked at the current financial statements for Reigle Homes, Co. The company has an EBIT of $2,850,000 this year. Depreciation, the increase in net working capital, and capital spending were $225,000, $90,000, and $415,000, respectively. You expect that over the next five years, EBIT will grow at 16 percent per year, depreciation and capital spending will grow at 21 percent per year, and NWC will grow at 11 percent per year. The company has $15,100,000 in debt and 345,000 shares outstanding. You believe that sales in five years will be $22,600,000 and the price-sales ratio will be 2.4. The company’s WACC is 8.5 percent and the tax rate is 21 percent.

• Fiscal policy refers to the changes in government’s choices regarding the overall level of government spending and taxes to influence the behavior of the economy. Fiscal policy can expand or contract aggregate demand. The government sometimes uses the fiscal policy instruments in an attempt to stabilize the economy. Under a recession, an expansionary fiscal policy is adopted, which involves lowering taxes and/or increasing government spending. In an overheated expansion with an inflationary pressure, a contractionary fiscal policy is utilized, which requires higher taxes and/or reduced government spending. Economists and policymakers disagree about how active the government should be in these fiscal policy efforts.
• What are the expansionary and contractionary fiscal policies? What are their policy instruments? How are they used to deal with the inflationary gap and recessionary gap? Which do you think is more appropriate today?
• Should the government balance its budget? If you think it should, what steps do you suggest that it take to balance its budget?
• What is the relationship between budget deficits and national (public) debt? Why the U.S. national debt has been increasing for decades?
• Should the tax laws be reformed to encourage saving? Do you think consumption tax is better than income tax?

Crovo Corporation uses customers served as its measure of activity. During December, the company budgeted for 42,000 customers, but actually served 44,000 customers. The company has provided the following data concerning the formulas used in its budgeting and its actual results for December:

Data used in budgeting:

Actual results for December:

3-All of the following are possible explanations for the increase in U.S. government budget deficits as a percentage of GDP since 2000 EXCEPT

A.increases in payments for entitlements.

B.increases in tax revenues.

C.decreases in tax rates.

D.increases in government spending.

11-Which of the following is an example of a stock ​variable?

A.The government debt.

B.Income

C.Investment.

D.Saving.

12-Which of the following is a stock​ variable?

A.money supply

B.wealth

C.public debt

D.all of the above

15-Which of the following statements is TRUE about the historical relationship between the trade deficits and government budget​ deficits?

A.There is a positive relationship between trade deficits and budget deficits.

B.There is no relationship between trade deficits and budget deficits.

C.There is a negative relationship between trade deficits and budget deficits.

D.A relationship exists only when there is a balanced budget.

18-The public debt is

A.a situation in which the​ government's spending is exactly equal to the total taxes and other revenues it collects during a given time period.

B.all federal government debt irrespective of who owns it.

C.an excess of government spending over government revenues during a given time period.

D.the total value of all outstanding federal government securities.