« previous next »

Author Question: The IS model implies that a dollar of government spending has a larger impact on equilibrium output ... (Read 81 times)

clmills979

  • Hero Member
  • *****
  • Posts: 551
on: Jun 30, 2018
The IS model implies that a dollar of government spending has a larger impact on equilibrium output than does a dollar of taxes. Explain.
 
  What will be an ideal response?

Question 2

The nominal GDP of Year 2 is
 
  A) 800.
  B) 1050.
  C) 1900.
  D) 2400.


zhanghao

  • Sr. Member
  • ****
  • Posts: 316
Reply #1 on: Jun 30, 2018
Answer to Question 1

In the IS equation, government purchases are a component of autonomous spending, no different than autonomous consumption, investment, and net exports. From the perspective of producers, a customer is a customer. Taxes, clearly, are not an expenditure. Taxes affect expenditure by reducing disposable income and, thus, consumption. Since only a fraction of disposable income is spent for consumption  a fraction measured as the marginal propensity to consume  each dollar of taxes corresponds to a fraction of a dollar taken from consumption expenditure.

Answer to Question 2

D


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
« previous next »
 

Did you know?

Of the estimated 2 million heroin users in the United States, 600,000–800,000 are considered hardcore addicts. Heroin addiction is considered to be one of the hardest addictions to recover from.

Did you know?

During the twentieth century, a variant of the metric system was used in Russia and France in which the base unit of mass was the tonne. Instead of kilograms, this system used millitonnes (mt).

Did you know?

Each year in the United States, there are approximately six million pregnancies. This means that at any one time, about 4% of women in the United States are pregnant.

Did you know?

The top 10 most important tips that will help you grow old gracefully include (1) quit smoking, (2) keep your weight down, (3) take supplements, (4) skip a meal each day or fast 1 day per week, (5) get a pet, (6) get medical help for chronic pain, (7) walk regularly, (8) reduce arguments, (9) put live plants in your living space, and (10) do some weight training.

Did you know?

Fungal nail infections account for up to 30% of all skin infections. They affect 5% of the general population—mostly people over the age of 70.

Model Organism Neurospora Model Organism Neurospora
Eye Model Eye Model
A taxonomy of primate social systems. Larger symbols indicate adults. A taxonomy of primate social systems. Larger symbols indicate adults.
Model of the Reading Process Model of the Reading Process
The world has been horrified recently at a U.S. Congress so polarized and paralyzed that it cannot p The world has been horrified recently at a U.S. Congress so polarized and paralyzed that it cannot p
How to fit an exponential model to data How to fit an exponential model to data
Video: Control of ventilation rate by other brain centers (posts, hypothalamus & cerebral cortex)

For a complete list of videos, visit our video library