A country is experiencing a recession due to an unexpected shock to aggregate demand. The economy's current level of real GDP is below its long-run equilibrium and the price level is below the equilibrium price level. Government officials must decide whether to implement fiscal policy or allow the economy to return to full employment on its own. a. Suppose that government officials have decided to implement expansionary fiscal policies. What are their desired outcomes? Instructions: You may select more than one answer. Click the box with a check mark for correct answers and click again to empty the box for the incorrect answers. ? increase aggregate supply ?increase aggregate demand ? expand real GDP ? raise the price level ?reduce unemployment ? control inflation b. Which of the following policy is consistent with expansionary fiscal policy? O Increase sales tax rates. O Reduce personal income tax rates. O Reduce spending on government infrastructure. O Increase the amount of currency in circulation. c. When comparing the two options for restoring the economy to its full-employment level of output, the benefit of allowing the economy to return to full employment on its own is that O full employment is reached with a higher price level. O full employment is reached with a lower price level. O lower unemployment and higher real GDP are reached. O the economy will recover faster without fiscal policy.
A country is experiencing a recession due to an unexpected shock to aggregate demand. The economy's current level of real GDP is below its long-run equilibrium and the price level is below the equilibrium price level. Government officials must decide whether to implement fiscal policy or allow the economy to return to full employment on its own. a. Suppose that government officials have decided to implement expansionary fiscal policies. What are their desired outcomes? Instructions: You may select more than one answer. Click the box with a check mark for correct answers and click again to empty the box for the incorrect answers. ? increase aggregate supply ?increase aggregate demand ? expand real GDP ? raise the price level ?reduce unemployment ? control inflation b. Which of the following policy is consistent with expansionary fiscal policy? O Increase sales tax rates. O Reduce personal income tax rates. O Reduce spending on government infrastructure. O Increase the amount of currency in circulation. c. When comparing the two options for restoring the economy to its full-employment level of output, the benefit of allowing the economy to return to full employment on its own is that O full employment is reached with a higher price level. O full employment is reached with a lower price level. O lower unemployment and higher real GDP are reached. O the economy will recover faster without fiscal policy.
Chapter24: Fiscal Policy
Section: Chapter Questions
Problem 5P
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Transcribed Image Text:A country is experiencing a recession due to an unexpected shock to aggregate demand. The economy's current level of real GDP is
below its long-run equilibrium and the price level is below the equilibrium price level. Government officials must decide whether to
implement fiscal policy or allow the economy to return to full employment on its own.
a. Suppose that government officials have decided to implement expansionary fiscal policies. What are their desired outcomes?
Instructions: You may select more than one answer. Click the box with a check mark for correct answers and click again to empty the
box for the incorrect answers.
? increase aggregate supply
increase aggregate demand
? expand real GDP
? raise the price level
reduce unemployment
? control inflation
b. Which of the following policy is consistent with expansionary fiscal policy?
O Increase sales tax rates.
O Reduce personal income tax rates.
O Reduce spending on government infrastructure.
O Increase the amount of currency in circulation.
c. When comparing the two options for restoring the economy to its full-employment level of output, the benefit of allowing the
economy to return to full employment on its own is that
O full employment is reached with a higher price level.
O full employment is reached with a lower price level.
O lower unemployment and higher real GDP are reached.
O the economy will recover faster without fiscal policy.
-
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