5. a) "Fiscal policy is completely crowded out in a small open economy with floating exchange rate according to Mundell-Fleming Model". How does it differ from crowding out of fiscal policy in a closed economy? b) Briefly discuss how time lag could be an argument against policy activism. What is the role of automatic stabilizers in this context?

5. a) "Fiscal policy is completely crowded out in a small open economy with floating exchange rate according to Mundell-Fleming Model". How does it differ from crowding out of fiscal policy in a closed economy? b) Briefly discuss how time lag could be an argument against policy activism. What is the role of automatic stabilizers in this context?

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 1P

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Similar questions

What is the main advantage of automatic stabilizers over discretionary fiscal policy?
Under what general macroeconomic circumstances might a government use expansionary fiscal policy? When might it use contractionary fiscal policy?
Explain how automatic stabilizers work, both on the taxation side and on the spending side, first in a situation where the economy is producing less than potential GDP and then in a situation where the economy Is producing more than potential GDP.
a) Suppose that there are no crowding-out effects and the MPC is 0.8. By how much must the government increase expenditures shift the aggregate-demand curve right $10 billion? b. The model of Long-run Growth, proposes that fiscal policy can have lasting effects on savings, investment, and economic growth. On the other hand, the model of Aggregate Demand-Aggregate Supply suggests that the only long run effect of fiscal policy is an increase in the price level. How could you use the Aggregate Demand and Aggregate Supply model for a more accurate description of the short-run and long-run effects of an increase in government spending? Could you distinguish between different uses of government expenditures to predict their effects on prices and output?
a) What are the three fiscal policy tools and how would each be used to counter a contractionary gap? b) True or False and explain: Fiscal Policy is effective at reducing the duration of an economic contraction. c) If the spending multiplier is 2.5 and the economy is in a $500 billion contractionary gap, how much should I increase government purchases to eliminate the gap? d) Continuing with c, if the MPC is 0.8, how much would I need to increase transfer payments to eliminate the $500 billion contractionary gap? e) True or False and explain: Households always react to tax changes in a predictable manner. Module 6: Deficits and the Debt. a) Distinguish between deficit and debt. b) Explain what crowding out is and why it reduces the impact of fiscal stimulus. c) True or false and explain: The national debt represents a threat of bankruptcy. (For d and e) Suppose the interest on the debt was $600 billion. If interest is paid domestically, 90% will be spent domestically (the remainder is…
A. Differentiate between discretionary fiscal policy and nondiscretionary or built-in stabilization policy. B. When in a recession a government has the option to increase government spending or decrease taxes to stimulate the economy. Discuss which piece of GDP is being targeted when each is used.
What is the crowding-out effect? How does it modify the implications of the basic Keynesian model with regard to fiscal policy? How does the ne classical theory of fiscal policy differ from the crowding-out model?
1.Explain the concept of Automatic stabilizer, using the tax system as an example.2.Gomad is a small economy operating with output that is $40 million below its natural level. Assume there is no crowding-out effect and the price level is completely fixed in the short run, how much government spending does the fiscal policymakers need to change to close this recessionary gap if MPC is 0.8?3.Consider an economy described by the following equation:Y=C+Ig+G C=300+0.75(Y−T) Ig=700−12r G=250T=200where Y is the real GDP, C is the total consumption, Ig is the gross investment, G is thegovernment purchases, T is income taxes, and r is the real interest rate. Suppose r is real interest rate(in percent) = 10% 3.1 If income is equal to zero, what would be the level of consumption in this economy?
Crowding out is on the minds of many policy analysts currently as the government borrows more than $1 trillion annually, leading them to question whether or not the government can actually stimulate the American economy. Explain in words what is meant by crowding out, relate it to the size of the fiscal multiplier and show it on a graph of IS-LM. When is crowding out minimal and when is it large? Explain and draw the graphs. Lastly, crowding out need not ever really be an issue, at least in theory. Show, using the IS-LM model, how crowding out by fiscal policy can be offset by some other policy action.
Given the following information. C = 100 + 0.75Yd , (dengan, Yd = Y − T) I = 240 − 600r G = 50 T = 30 Derive the equation for IS curve. Calculate the equilibrium level of income if the interest rate is 8 percent. What is the impact on the equilibrium level of income if the government runs an expansionary fiscal policy by adding G by 200 units? What is the impact on the IS curve if the government increases tax to 80 units? What are the factors other than the fiscal policy factors that can cause the IS curve to shift?
pls solve for C and D, please let it be correct In each of the following cases, calculate the spending multiplier and determine the size and shift of each fiscal policy on the AD (aggregate demand) curve. a. Government increases spending by $4 billion in an economy with a MPW of 0.7b. Government spending decreases by $2 billion in an economy with a MPC of 0.65.c. Government increases taxes by $3 billion in an economy with a MPW of 0.35d. A $5 billion tax cut causes an initial increase in spending of $1.5 billion.
Discuss the current Fiscal Policy with the impact of the coronavirus on macroeconomics in place to support the US economy. Also, explain how the Fiscal Policy is expected to impact GDP, Inflation and unemployment. Plz do fast asap