I. According to the Venezuelan National Institute of Statistics, the Consumer Pr
ID: 1120713 • Letter: I
Question
I. According to the Venezuelan National Institute of Statistics, the Consumer Price Index (CPl) and Gross Domestic Product (GDP) for the period 2009-2016 are as shown on Table 1: Table 1 CPI, GDP and Unemployment 2009-2016 Year CPI GDP (Current $) Unemployment 2009 100.0 2010 130.9 677,593,637 2011 163.7 707,262,549 2012 208.2 1,016,834,748 2013 265.6 1,357,487,061 2014 318.9 1,635,451,060 2015 498.1 2,245,843,966 2016 839.5 3,031,242,431 o 494,591,535 5.2% 5.2% 6.1% 5.8% 5.6% 5.7% 5.8% 5.4% f The Venezuelan government wants to close 2017 exactly at the same level of 201 in order to achieve that, you are required to come up with a tax policy that changes the amount of taxes to be collected by the Venezuelan Internal Revenue Service. What type of policy and magnitude should be implemented? behele thatyou ae equied to tneExplanation / Answer
Tax multiplier = - MPC / (1 - MPC) = - 0.8 / (1 - 0.8) = - 0.8 / 0.2 = - 4
It means that to increase GDP by $4, tax should be cut by $1.
Required increase in GDP ($) = 3,031,242,431 - 2,245,843,966 = 785,398,465
Required decrease in tax = $785,398,465 / 4 = $196,349,616.3
This is an expansionary fiscal policy.