2) Explain the macroeconomic effects of a tax cut according to the Ricardian Equivalence proposition. Include in your answer the 1S-LM graph that shows the effects of this tax cut.
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- In this section, the context is a large negative shock to autonomous consumption in an open economy. You may assume the economy is initially at a medium run equilibrium. Provide two different scenarios in which the macroeconomic policy response to the shock in an op economy includes the use of expansionary fiscal policy, Explain your reasoning, the policy chosen and describe how the economy adjusts to medium-run equilibrium. Refer to real world examples.Suppose the closed economy is in long-run equilibrium. Immigration of skilled workers shifts the long-run aggregate supply curve $60 billion to the right. At the same time, government purchases increase by $40 billion. If the MPC equals 0.75 and the crowding-out effect is $160 billion, what would we expect to happen in the long-run to real GDP and the price level? a. Both real GDP and the price level would be higher. b. Real GDP would be higher, but the price level would be the same. c. Real GDP would be higher, but the price level would be lower. d. Both real GDP and the price level would be lower.“Expansionary fiscal policy is more effective in influencing the aggregate income level when investment is interest-elastic”. Do you agree with this statement? Why and why not? Explain your answer based on the IS-LM framework.
- Explain and discuss contactionary fiscal policy and contactionary monetary policy with IS-LM graphs and explain its affects on consumption, aggregate demand .Use the following versions of the IS-LM model to answer all sections: Question: c. determine the equilibrium value of Y, if M = 2,200, P = 1, and Yp = 4000 d. Based on the results of question point c, does the government budget experience a surplus, deficit, or balance?hi, posting this again. will you let me know if these are correct? 18- tax cuts directed at higher income individuals will do more to stimulate the economy than those directed to lower income individuals, in the keynesian model.-true 19- growing federal budget deficits are a problem cased by kenynesian economics- false 20- Keynes advocated using government deficits in times of depression -true
- Assume that a hypothetical economy with an MPC of 0.8 is experiencing severe recession. Instructions: In part a, round your answers to 2 decimal places. Enter your answers as positive numbers. In part b, enter your answers as whole numbers. a. By how much would government spending have to rise to shift the aggregate demand curve rightward by $30 billion? How large a tax cut would be needed to achieve the same increase in aggregate demand? b. Determine one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt (i.e., maintaining the budget balance at its current value).Assume that a hypothetical economy with an MPC of 0.9 is experiencing severe recession. a. By how much would government spending have to rise to shift the aggregate demand curve rightward by $40 billion? How large a tax cut would be needed to achieve the same increase in aggregate demand? b. Determine one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt. increase spend by increase tax byAssume that fiscal policy can be accomplished by changing only one of G and T. In the IS-LM framework, suppose the effect on the general equilibrium output is the same between expansionary fiscal policy and expansionary monetary policy. Which one would you expect to have a greater impact on the equilibrium consumption?
- Explain the impact of a tax cut on income, the interest rate and money demand in the IS-LM model. Explain what happens to the position of the LM curve as policy makers pursue expansionary fiscal policy.Identify the statement as True, False, or Uncertain, and explain your reasoning in detail (graphs if possible) Assume that workers supply effort based on their expected real consumption wage and consume a basket with a non-negligible component of imported goods and services. The government in an open economy implements a contractionary fiscal policy (from an initial medium-run equilibrium) motivated, for example, by its desire to reduce national debt. This leads to lower real wages and higher unemployment in equilibrium. Hint: you may want to compare this with the case in which the initial two assumptions do not hold.Assume that a hypothetical economy with an MPC of 0.75 is experiencing severe recession. Instructions: In part a, round your answers to 2 decimal places. Enter positive numbers. In part b, enter your answers as whole numbers. a. By how much would government spending have to rise to shift the aggregate demand curve rightward by $40 billion? $ billion. How large a tax cut would be needed to achieve the same increase in aggregate demand? $ billion. b. Determine one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt (because it maintains a balanced budget, G = T). Increase spending by $ billion. Increase taxes by $ billion.