00:01
Hello, in this video, i will be answering the following question about an effort to avoid an increase in the deficit votes for budget neutral tax cut policy.
00:11
So, assume marginal propensity to consume mpcc is equal to 0 .65 and taxes are cut by $9 billion.
00:25
So the first question is by how much will go spending change? so we're going to use the multiplier formula.
00:37
So that is this.
00:43
And we already know our mpc is equal to our 0 .065.
00:55
So now we just plug it in to our equation which is and that comes out to two point all right so that's the and then that's the answer to our equation so now we're going to multiply it by our nine billion because gov expenses fell by nine billion so it's going to be times negative 9 and it's negative because in the original question it said that anything that goes down is going to be negative or shown with a negative number so now we should do 2 .85 times negative 9 which gives us negative 25 .65 and we know that's going to be in billions so that means that the government spending fell since it's fell by 9 billion the result of the answer is 25 negative 25 65 which means that the gdp there's a fall in gdp by 25 65 billion dollars so next you have the part b of this question which is the resulting change in equilibrium level of real gdp.
02:39
So once again we use our tax multiplier this time, which is m, and then we just add in our numbers, which if we look back, just for a reminder, is 0 .65.
03:01
So, and then we know that from our last one point we could just 2 .85.
03:21
This would go 2 .85, but we have to divide it.
03:25
So that will give us negative 1 .8 .5.
03:35
And then from here, we would multiply by our negative 8, which gives us 14.
03:53
So from here we know that the gdp there was a raise in the real gdp.
04:02
There was a raise of $4 .8 billion in the real gdp due to the fall in taxes.
04:12
So i hope this helped with this question.
04:14
So i hope this helped.
04:16
Okay, so my apologies, i just re -looked...