Economics help!

-=Hot|Ice=- · 04-15-2011, 12:16 AM

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.

-=Hot|Ice=- · 04-15-2011, 12:26 AM

Anyone?

skinnycow · 04-15-2011, 12:36 AM

yeah, give me a sec.

-=Hot|Ice=- · 04-15-2011, 12:56 AM

Quote:

Originally Posted by skinnycow

yeah, give me a sec.

skinnycow · 04-15-2011, 01:18 AM

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.

arggg45 · 04-15-2011, 01:19 AM

Quote:

Originally Posted by skinnycow

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.

-=Hot|Ice=- · 04-15-2011, 01:20 AM

Quote:

Originally Posted by skinnycow

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.

skinnycow · 04-15-2011, 01:21 AM

what would you guys do without me!

-=Hot|Ice=- · 04-15-2011, 01:22 AM

Quote:

Originally Posted by skinnycow

what would you guys do without me!

Thank you so much.

ghosthi32 · 04-15-2011, 01:49 AM

wheres btm when you need him

-=Hot|Ice=- · 04-15-2011, 01:51 AM

Quote:

Originally Posted by ghosthi32

wheres btm when you need him

No need to fear, Skinnycow was here.

CollinsE90 · 04-15-2011, 01:51 AM

Quote:

Originally Posted by ghosthi32

wheres btm when you need him

passed out drooling on the keyboard after a bottle of wine

Wakka · 04-15-2011, 01:52 AM

what collin said

Blake · 04-15-2011, 02:18 AM

Quote:

Originally Posted by skinnycow

1+1=2

you damn asians and your numbers...

McMuffin · 04-15-2011, 02:31 AM

Quote:

Originally Posted by Blake

you damn asians and your numbers...

Seriously

Grauss · 04-15-2011, 08:32 AM

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).

BTM · 04-15-2011, 08:37 AM

Quote:

Originally Posted by ghosthi32

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

Quote:

Originally Posted by CollinsE90

passed out drooling on the keyboard after a bottle of wine

persian54 · 04-15-2011, 01:56 PM

Quote:

Originally Posted by Blake

you damn asians and your numbers...

48÷2(9+3)=288

-=Hot|Ice=- · 04-15-2011, 01:59 PM

Skinny, I would like to inform you that you still have it. Got it right. Thanks.

skinnycow · 04-15-2011, 04:15 PM

Quote:

Originally Posted by -=Hot|Ice=-

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.

-=Hot|Ice=- · 04-15-2011, 08:23 PM

Quote:

Originally Posted by skinnycow

like a boss

if you need anymore help, let me know.

Thanks!

nnnnnnnnnnnnnnnnnnnnnn · 04-15-2011, 08:40 PM

Quote:

Originally Posted by skinnycow

like a boss

if you need anymore help, let me know.

I need help taking my pants off...

04-15-2011, 12:36 AM	#3
skinnycow condoms prevent minivans 242 Rep 223 Posts Drives: Batmobile Join Date: Nov 2010 Location: Kitchen iTrader: (0)	yeah, give me a sec. __________________ I have strong opinions about things that don't matter.
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04-15-2011, 01:18 AM	#5
skinnycow condoms prevent minivans 242 Rep 223 Posts Drives: Batmobile Join Date: Nov 2010 Location: Kitchen iTrader: (0)	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. __________________ I have strong opinions about things that don't matter.
	Appreciate 0 Quote

04-15-2011, 01:21 AM	#8
skinnycow condoms prevent minivans 242 Rep 223 Posts Drives: Batmobile Join Date: Nov 2010 Location: Kitchen iTrader: (0)	what would you guys do without me! __________________ I have strong opinions about things that don't matter.
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04-15-2011, 01:49 AM	#10
ghosthi32 Banned 39 Rep 2,504 Posts Drives: Water camel Join Date: Dec 2009 Location: strait of hormuz iTrader: (0)	wheres btm when you need him
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04-15-2011, 08:32 AM	#16
Grauss Enlisted Member 10 Rep 35 Posts Drives: The Flintmobile Join Date: Jul 2009 Location: Athens, GA iTrader: (0)	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).
	Appreciate 0 Quote