“If taxes and government spending are increased by the same amount, there will still be a positive effect on equilibrium GDP.” Explain.
What will be an ideal response?
The initial impact of government spending is to increase aggregate demand directly by the amount of the increase in spending. Beyond that, spending is increased in successive rounds of increased incomes that result by a fraction equal to the marginal propensity to consume. This MPC-induced spending which results from the increased government purchases will be exactly offset by the tax increase whose initial impact is to reduce disposable income rather than aggregate demand directly. Thus, government spending has an initial direct effect equal to the amount of the increase in G which will not be offset.
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If the ratio of the dollar price of a U.S. toy to the dollar price of a Chinese toy is greater than one:
A) retailers in the U.S. should buy the toys from Chinese suppliers. B) retailers in the U.S. should buy the toys from both Chinese suppliers and American suppliers. C) retailers in the U.S. should not buy the toys from both Chinese suppliers and American suppliers. D) retailers in the U.S. should buy the toys from American suppliers.
Coal is very useful in the production of electricity. Red beryl, although not generally considered as very useful, is a beautiful gemstone found in the mountains of Utah, and has been described as 1,000 times more valuable than gold
Explain why red beryl costs so much more than coal.