A Moving to another question will save this response. Quèstion 7 Which of the following fiscal policy changes would be the most contractionary? O A. a $40 billion increase in taxes. O B. a $30 billion increase in taxes and a $10 billion cut in government spending. O C. a $20 billion increase in taxes and a $20 billion cut in government spending. O D. a $10 billion increase in taxes and a $30 billion cut in government spending. 1 A Moving to apother auastion will save this resnonse

A Moving to another question will save this response. Quèstion 7 Which of the following fiscal policy changes would be the most contractionary? O A. a $40 billion increase in taxes. O B. a $30 billion increase in taxes and a $10 billion cut in government spending. O C. a $20 billion increase in taxes and a $20 billion cut in government spending. O D. a $10 billion increase in taxes and a $30 billion cut in government spending. 1 A Moving to apother auastion will save this resnonse

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 3P

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Why is spending by the U.S. government on scientific research at NASA fiscal policy while spending by the University of Illinois is not fiscal policy? Why is a cut in the payroll tax fiscal policy whereas a cut in a state income tax is not 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.
What would happen if expansionary fiscal policy was implemented in a recession but, due to lag, did not actually take effect until after the economy was back to potential GDP?
What is the main advantage of automatic stabilizers over discretionary fiscal policy?
Explain the difference between the government purchases multiplier and the net tax multiplier. If the MPC falls, what happens to the tax multiplier?
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?
Asap both 1.a) Which of the following statements is correct?l.Expansionary fiscal policy is used to remove a recessionary gap.ll. Expansionary fiscal policy is used to shift AD right.A) l onlyB) I onlyC)both I and ID) neither I nor ll 1.b) Which of the following are examples of contractionary fiscal policy?A) decreasing government expendituresB) increasing taxesC) increasing transfer paymentsD) A and B are both contractionary fiscal policiesE) A, B, and C are all contractionary fiscal policies
17 - If taxes (T) increase, total expenditures decrease. In what direction does the demand curve shift?A) To the rightB) Moves on CurveC) NoneD) leftE) immutable
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…
1. Fiscal Policya. Assume the Economy has an inflationary gap with above average price level, demonstrate this graphically and explain label the short run gdp with A.b. If the US has an MPC of 75% and the government decides to increase spending on social programs by $150 billion, what will happen to GDP (Y) and Price level (P) in the Short Run? Demonstrate and Explain. Label this point B.c. What Fiscal Policy should the Government implement (why?)? What Choices do they have? What will be the effects of this policy on the GDP? Demonstrate and Fully explain (hint: explain the steps as outlined in class)
Suppose the federal government gives taxpayers a tax cut financed by borrowing. If taxpayers their debts, total spending will: O decrease. O first increase and then decrease. O increase. O remain unchanged.