Tcos E And F Answer Parts A, B, And C Completely

7tcos E And F Answer Parts A B And C Completely 40 Pointspart

(Part A) Suppose your local Congress representative suggests that the federal government should not intervene in the baseball ticket market to stop runaway price increases. Would you say that this view basically supports the Keynesian or the Monetarist school of thought? Why? What position would the opposing school of thought take on this issue? (Be brief—you can answer this in two or three brief paragraphs.) (15 points)

The stance of the Congress representative aligns more closely with the Monetarist school of thought. Monetarists emphasize the importance of controlling the money supply and argue that market forces should largely determine prices without government interference. They believe that prices, including those in markets like baseball tickets, will stabilize over the long run through the natural functioning of supply and demand, and that government intervention could do more harm than good by creating distortions in the market. Therefore, rejecting intervention to curb rising ticket prices reflects Monetarist principles, prioritizing free-market mechanisms over government regulation.

The opposing school, Keynesian economics, would advocate for government intervention to manage economic fluctuations and protect consumers from price volatility. Keynesians argue that during periods of economic excess, such as runaway price increases, government policies—like subsidies, price controls, or other interventions—are necessary to stabilize markets, ensure affordability, and prevent market failures. They believe that government has a role in smoothing out the business cycle and safeguarding economic stability, which contrasts with the Monetarist focus on minimal intervention.

(Part B) Any change in the economy’s total expenditures would be expected to translate into a change in GDP that was larger than the initial change in spending. This phenomenon is known as the multiplier effect. Explain how the multiplier effect works. (10 points)

The multiplier effect describes how an initial change in autonomous spending—such as government expenditure, investments, or exports—can lead to a larger overall impact on total economic output or GDP. It works through subsequent rounds of re-spending; when the government increases spending, it directly boosts incomes for businesses and households. Those receiving the income are likely to spend a portion of it—determined by the marginal propensity to consume—further increasing demand for goods and services. This increased demand leads businesses to produce more, hire additional employees, and invest in capacity expansion, which in turn generates more income and spending in the economy. Each subsequent round of spending diminishes progressively, but the total impact accumulates to be greater than the initial expenditure. The size of the multiplier depends on the marginal propensity to consume and how much of additional income households choose to spend versus save.

(Part C) You are told that 50 cents out of every extra dollar pumped into the economy goes toward consumption (as opposed to saving). Estimate the GDP impact of a positive change in government spending that equals $15 billion. (15 points)

Given that 50% of any additional income is spent on consumption, the marginal propensity to consume (MPC) is 0.5. The multiplier (k) can be calculated using the formula: k = 1 / (1 - MPC). Substituting the value, we get k = 1 / (1 - 0.5) = 2. The impact on GDP is then the initial change in spending multiplied by the multiplier: $15 billion x 2 = $30 billion. Therefore, a $15 billion increase in government spending would lead to an estimated $30 billion increase in GDP, assuming other factors remain constant and the economy operates near full capacity.

Paper For Above instruction

The debate over government intervention in markets remains a central theme in economic theory, particularly when evaluating specific markets such as professional baseball ticket sales. The stance of the Congress representative, advocating against intervention to curb rising ticket prices, aligns closely with Monetarist principles. Monetarists emphasize the role of money supply and market forces in achieving equilibrium and tend to resist government interference, asserting that the market is best left to adjust naturally. This perspective suggests that attempts to control ticket prices artificially could distort supply and demand, leading to inefficiencies and potential long-term negative effects.

In contrast, Keynesian economics advocates for active government intervention, especially during periods of economic imbalance or market failure. Keynesians argue that government policies, including price controls or subsidies, can help stabilize prices and protect consumers, particularly in markets prone to speculation and volatility like entertainment and sports industries. During periods of runaway prices, Keynesian approaches would support measures to prevent excessive inflation and ensure market fairness, viewing the market as needing oversight to guard against the negative effects of unregulated price hikes.

The divergence between these schools highlights fundamental differences: Monetarists favor laissez-faire policies emphasizing supply and demand, while Keynesians prioritize government action to smooth fluctuations and secure economic stability. Both perspectives offer valuable insights, yet their applicability depends on the specific economic context and the nature of the market involved.

The multiplier effect is a cornerstone concept in Keynesian macroeconomics, illustrating how initial spending leads to a larger impact on aggregate output. When the government injects expenditures into the economy—say through infrastructure projects or stimulus packages—these initial funds directly raise income for recipients. Those recipients, in turn, spend a portion of their increased income based on their marginal propensity to consume, which further stimulates demand across various sectors. This process continues in successive rounds, with each round's impact diminishing but cumulatively producing a multiplier effect that amplifies the initial spending's influence on GDP.

The magnitude of this multiplier depends primarily on consumers' marginal propensity to consume. For example, if households spend half of any additional dollar earned, the MPC is 0.5. The multiplier (k) is calculated as 1 / (1 - MPC), which in this case equals 2. This means that for every dollar of initial government spending, the total impact on GDP would be twice that amount, due to the series of re-spending cycles. Essentially, increased government expenditures set off a chain reaction of increased income and demand, significantly influencing overall economic activity.

Applying this to a specific scenario, if the government increases spending by $15 billion and the MPC is 0.5, then the overall GDP impact would be approximately $30 billion. This calculation underscores the potency of fiscal policy instruments, particularly in stimulating economic growth during downturns or periods of sluggish activity. It demonstrates how well-targeted government spending can generate substantial multiplier effects, leveraging marginal propensities to amplify initial fiscal impulses.

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