Automatic stabilizers in the economy tend to

Taxes must fall by $75 to close the GDP gap because with an MPC of. The recessionary gap is the amount that aggregate expenditures must change to close the GDP gap.ДЎ2. GDP gap = potential GDP - actual real GDP = $900 billion - $800 billion = $100 billion.ДЎ1. Income taxes are generally structured as progressive taxes because that is considered the fairest system: The higher one's income, the more one can afford to pay taxes.ДЎ0. Proportional: The tax rate remains constant as income rises. Regressive: The tax rate falls as income rises. Progressive: The tax rate rises as income rises. Deficits grow during recessions since transfer payments rise and tax revenues fall.Д©. This leads to a balance-of-trade deficit.ДЁ. A larger fiscal deficit causes domestic interest rates to rise, which attracts foreign investors, who exchange foreign money for domestic money to use to purchase domestic bonds, which causes the domestic currency to appreciate on the foreign exchange market and causes domestic goods to rise in price relative to foreign goods. The balanced-budget multiplier is derived from adding the spending multiplier to the tax multiplier.Д§. The multiple by which real GDP increases (decreases) when both government spending and taxes are increased (decreased) by an equal amount is the balanced-budget multiplier. Because government spending increases expenditures directly, but taxes decrease expenditures indirectly and by less than the change in taxes. On the tax side, developing countries tend to depend more on indirect taxes and developed countries, on income taxes.Д¦. Developing countries also spend less on social welfare and education than industrial countries do. In the developing countries the government plays a larger role in investment spending than it does in the industrialized countries.

Because these workers no longer receive unemployment benefits, expenditures on unemployment benefits fall and the budget moves toward a surplus.ДҐ. When the economy expands, workers who had been unemployed find work. Unemployment benefits also act as automatic stabilizers. Hence, government expenditures fall and the budget moves toward a surplus. When the economy expands, individuals who had been receiving social welfare benefits gain employment. Transfer payments also act as automatic stabilizers. A progressive tax system acts as an automatic stabilizer because as the economy expands and incomes rise, tax revenues increase, thereby moving the budget toward a surplus.

Automatic stabilizers are those elements of fiscal policy that change automatically in value when real GDP changes. Budget deficits are harmful to the economy if they cause interest rates to increase, thereby crowding out investment and/or net exports.Д¤. There is an eighteen-month lag between the beginning of the budget process and the actual spending of the money.ДЈ.

Funds are appropriated and the process ends by June. By April 15 the budget resolution is passed, and it is followed by the reconciliation process, whereby congressional committees make spending and tax decisions. The Congress reviews the president's budget in House and Senate hearings. The Office of Management and Budget reviews agency budgets and assembles them into a unified budget. The process begins with federal agencies preparing budget proposals. The steeper the slope of the AS curve, the greater the increase in AD required to move to the equilibrium level of real GDP.Дў. The GDP gap may be eliminated by increasing aggregate demand so that the AD curve intersects the AS curve at the potential level of real GDP. Exercises | study guide homework | internet exercisesДЎ.

Automatic stabilizers in the economy tend to