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      04-14-2011, 11:16 PM   #1
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Economics help!

I am totally lost. A little help, please?

1. Assume that the MPC is .7 and the formula for the fiscal multiplier is as follows: 1/(1-MPC)


Show your work for each part of the equation:


By how much will AD at current prices shift/increase with

A.) A $185 billion increase in government purchase
B.) A $185 billion tax cut

What will the cumulative or total AD shift/increase be(after the multiplier effect) for:

C.) Part A Above
D.) Part B Above.


Assume the Economy has a recessionary GDP gap of 615 billion and an upward sloping AS curve. Will the cumulative impact oft he increase in government spending in part (C) be enough to close the GDP gap? Explain.
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      04-14-2011, 11:26 PM   #2
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Anyone?
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      04-14-2011, 11:36 PM   #3
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yeah, give me a sec.
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      04-14-2011, 11:56 PM   #4
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yeah, give me a sec.
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      04-15-2011, 12:18 AM   #5
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a.
1 / (1 - .7)
1 / .3
3.33 or 3 1/3 multiplier

b.
(-.7) / (1 - .7)
(-.7) / (.3)
-2.33 or -2 1/3

c.
[(-$185) x (-.7)] / (1 - .7)
$129.5 / .3 = $431.66 or $431 2/3 billion

d.
($185) / (1-.7)
$185 / .3 = $616.66 or $616 2/3 billion

e.
No, based off the multiplier of $185 billion increased government spending, the result will be $431.33 billion. Unlike the tax cut, the same amount in government spending will not be enough to close the gap of $615 billion. A tax cut of $185 billion would close the gap, using the multiplier.



its been awhile, but everything should be correct. i'm 80% sure e is right, but look over it to make sure it makes sense.
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      04-15-2011, 12:19 AM   #6
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Quote:
Originally Posted by skinnycow View Post
a.
1 / (1 - .7)
1 / .3
3.33 or 3 1/3 multiplier

b.
(-.7) / (1 - .7)
(-.7) / (.3)
-2.33 or -2 1/3

c.
[(-$185) x (-.7)] / (1 - .7)
$129.5 / .3 = $431.66 or $431 2/3 billion

d.
($185) / (1-.7)
$185 / .3 = $616.66 or $616 2/3 billion

e.
No, based off the multiplier of $185 billion increased government spending, the result will be $431.33 billion. Unlike the tax cut, the same amount in government spending will not be enough to close the gap of $615 billion. A tax cut of $185 billion would close the gap, using the multiplier.



its been awhile, but everything should be correct. i'm 80% sure e is right, but look over it to make sure it makes sense.
He's right.
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      04-15-2011, 12:20 AM   #7
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Quote:
Originally Posted by skinnycow View Post
a.
1 / (1 - .7)
1 / .3
3.33 or 3 1/3 multiplier

b.
(-.7) / (1 - .7)
(-.7) / (.3)
-2.33 or -2 1/3

c.
[(-$185) x (-.7)] / (1 - .7)
$129.5 / .3 = $431.66 or $431 2/3 billion

d.
($185) / (1-.7)
$185 / .3 = $616.66 or $616 2/3 billion

e.
No, based off the multiplier of $185 billion increased government spending, the result will be $431.33 billion. Unlike the tax cut, the same amount in government spending will not be enough to close the gap of $615 billion. A tax cut of $185 billion would close the gap, using the multiplier.



its been awhile, but everything should be correct. i'm 80% sure e is right, but look over it to make sure it makes sense.

You rock my world.
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      04-15-2011, 12:21 AM   #8
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what would you guys do without me!
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      04-15-2011, 12:22 AM   #9
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what would you guys do without me!
Thank you so much.
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      04-15-2011, 12:49 AM   #10
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wheres btm when you need him
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      04-15-2011, 12:51 AM   #11
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wheres btm when you need him
No need to fear, Skinnycow was here.
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      04-15-2011, 12:51 AM   #12
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wheres btm when you need him
passed out drooling on the keyboard after a bottle of wine
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      04-15-2011, 12:52 AM   #13
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what collin said
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      04-15-2011, 01:18 AM   #14
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1+1=2
you damn asians and your numbers...
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      04-15-2011, 01:31 AM   #15
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you damn asians and your numbers...
Seriously
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      04-15-2011, 07:32 AM   #16
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I was like hey, I do economics! But of course, the asian beat the white kid to the answer (not like I was awake at 1:30 in the morning anyway).
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      04-15-2011, 07:37 AM   #17
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wheres btm when you need him
Adopting rigid weekday schedule...bed at 10 wake at 6:30. Didn't check skinny cow's answer but appears correct

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      04-15-2011, 12:56 PM   #18
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you damn asians and your numbers...
482(9+3)=288
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      04-15-2011, 12:59 PM   #19
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Skinny, I would like to inform you that you still have it. Got it right. Thanks.
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      04-15-2011, 03:15 PM   #20
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Skinny, I would like to inform you that you still have it. Got it right. Thanks.
like a boss

if you need anymore help, let me know.
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      04-15-2011, 07:23 PM   #21
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like a boss

if you need anymore help, let me know.
Thanks!
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      04-15-2011, 07:40 PM   #22
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like a boss

if you need anymore help, let me know.
I need help taking my pants off...
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