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##### Economics Module 5 Homework Assignment Solution

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solution

**Question**

Question;Complete the following problems from the problem set1. In the tax cut example on pages 236?37,(a) By how much does consumer saving increase initially?(b) How large is the initial spending injection?2. Suppose the consumption function isC 5 $400 billion 1 0.8Yand the government wants to stimulate the economy. By how much will aggregate demand at current prices shift initially (before multiplier effects) with(a) A $50 billion increase in government purchases?(b) A $50 billion tax cut?(c) A $50 billion increase in income transfers?What will the cumulative AD shift be for(d) The increased G?(e) The tax cut?(f) The increased transfers?3. Suppose the government decides to increase taxes by $20 billion to increase Social Security benefits by the same amount. How will this combined tax transfer policy a f fect aggregate demand at current prices?5. If the AD shortfall is $600 billion and the MPC is 0.9,(a) How large is the desired fiscal stimulus?(b) How large an income tax cut is needed?(c) Alternatively, how much more government spending would achieve the target?6. If the AD excess is $300 billion and the MPC is 0.8,(a) How much fiscal restraint is desired?(b) By how much do income taxes have to be increased to get that restraint?7. (a) According to the News on page 238, how much more did the average household spend onappliances, electronics, and furniture when it received the 2008 tax r e bate?(b) If all 110 million households did so, how much did aggregate consumption i n crease?(c) If the MPC was 0.75, how much would cumulative spending increase as a result?

Paper#56409 | Written in 18-Jul-2015

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