[Solved] A One-Time Tax Rebate, Which Is Not Expected to Be

Suppose real GDP is $1.7 trillion and potential real GDP is $1.74 trillion.An increase in government purchases of $40 billion would cause real GDP to ________ potential real GDP (assuming a constant price level). A)equal B)be less than C)be more than D)There is insufficient information given here to draw a conclusion.

If the government purchases multiplier equals 2, and real GDP is $1.7 trillion with potential real GDP of $1.75 trillion, then government purchases would need to increase by ________ to restore the economy to potential real GDP. A)$1.75 trillion B)$500 billion C)$100 billion D)$50 billion E)$25 billion

If the absolute value of the tax multiplier equals 1.6, real GDP is $1.3 trillion, and potential real GDP is $1.34 trillion, then taxes would need to be cut by ________ to restore the economy to potential real GDP. A)$15 billion B)$25 billion C)$40 billion D)$64 billion E)None of the above is correct.Taxes should be increased in this case.

A tax rebate by the government would A)increase your pretax income, but not your disposable income. B)increase your disposable income, but not your pretax income. C)decrease your pretax income, but not your disposable income. D)decrease your disposable income, but not your pretax income. E)increase your pretax income and increase your disposable income.

A government tax rebate of $1,000 would ________ your disposable income by ________. A)increase; less than $1,000 B)increase; $1,000 C)decrease; less than $1,000 D)decrease; $1,000

A tax rebate, which is expected to be offered in this and all future years, will A)have a small positive effect on consumption and aggregate demand. B)have no effect on consumption and aggregate demand. C)have a significant positive effect on consumption and aggregate demand, with aggregate demand growing by a multiple of the tax rebate. D)increase aggregate supply and aggregate demand. E)have a significant effect on aggregate supply, with firms expanding by a multiple of the increased tax take.

The tax multiplier is calculated as one minus the government purchases multiplier.

Suppose real GDP is $1.8 trillion and potential real GDP is $1.85 trillion.If the federal government increases government purchases by $50 billion, then the economy will be brought to equilibrium at potential real GDP.

In the case of an upward-sloping aggregate supply curve, the change in real GDP brought about by a change in government spending will be less than that predicted by the simple government purchases multiplier.

Describe the differences (in sign and relative magnitude)between the government purchases multiplier and the tax multiplier.