Practice Problems by Vũ Mai Duyên https://padlet.com/tungduyen5794/l1sda9721a0wk0up Topic: The Influence of Monetary and Fiscal Policy On Aggregate Demand en-us 2023-05-22 16:09:10 UTC 2023-05-24 05:59:20 UTC hello@padlet.com https://padlet.com/tungduyen5794/l1sda9721a0wk0up/wish/2602794275
Q1. Explain
When households expect a permanent tax cut, they anticipate having more money available for a longer period, which can impact their consumption and saving decisions. This expectation encourages consumers to increase their spending The increase in consumer spending leads to a higher level of aggregate demand in the economy.


]]> 2023-05-24 05:54:49 UTC https://padlet.com/tungduyen5794/l1sda9721a0wk0up/wish/2602794275 a lovely afternoon!!! https://padlet.com/tungduyen5794/l1sda9721a0wk0up/wish/2602794495 2023-05-24 05:55:01 UTC https://padlet.com/tungduyen5794/l1sda9721a0wk0up/wish/2602794495 Q1 https://padlet.com/tungduyen5794/l1sda9721a0wk0up/wish/2602794946 A tax cut that is expected to be permanent tends to stimulate greater spending by consumers and has a greater impact on aggregate demand compared to a tax cut that is temporary and expected to expire after one year. This can influence their long-term consumption decisions.]]> 2023-05-24 05:55:21 UTC https://padlet.com/tungduyen5794/l1sda9721a0wk0up/wish/2602794946 Q3 https://padlet.com/tungduyen5794/l1sda9721a0wk0up/wish/2602796447 So, the initial effect on aggregate demand would be:
Initial effect = Tax reduction * Marginal propensity to consume = $20 billion * 3/4 = $15 billion
]]> 2023-05-24 05:56:31 UTC https://padlet.com/tungduyen5794/l1sda9721a0wk0up/wish/2602796447 Q2 https://padlet.com/tungduyen5794/l1sda9721a0wk0up/wish/2602796923 Answer 2 a. MPC = Change in Total Demand/Change in Government Spending MPC = $30 billion / $10 billion MPC 3]]> 2023-05-24 05:56:57 UTC https://padlet.com/tungduyen5794/l1sda9721a0wk0up/wish/2602796923 https://padlet.com/tungduyen5794/l1sda9721a0wk0up/wish/2602797811 Q2.
The experts' revised estimate of the MPC would be lower than their original estimate if crowding out were now taken into account. The term "crowding out" describes the process wherein rising public expenditure results in falling private sector spending, frequently as a result of increased interest rates or decreased investment.
=> Government expenditure can lead to higher prices and interest rates, reducing private consumption.
]]> 2023-05-24 05:57:45 UTC https://padlet.com/tungduyen5794/l1sda9721a0wk0up/wish/2602797811 Q2 https://padlet.com/tungduyen5794/l1sda9721a0wk0up/wish/2602797990 b. If the economists now allow for crowding out, their new estimate of the MPC would be smaller than their initial one. Crowding out refers to the phenomenon where an increase in government. spending leads to a decrease in private sector spending, often through higher interest rates or reduced investment. When government spending increases, it can lead to higher demand for resources, which can drive up prices and interest rates. Higher interest rates can discourage private sector borrowing and investment, reducing private consumption and offsetting some of the initial increase in total demand caused by government spending.]]> 2023-05-24 05:57:55 UTC https://padlet.com/tungduyen5794/l1sda9721a0wk0up/wish/2602797990