a) Why can't the government run a budget deficit in a one- period macroeconomic model? b) Why are government transfer payments not included in (expenditure-based) GDP?
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- The following transactions took place in Ecoland in 2018: Trillions of 2014 dollars Government purchases 400 Taxes 360 Firms’ profits 300 Investment 400 Consumption expenditure 1000 Wages paid to labor 1400 Exports 300 Government transfer payments 150 Imports 350 (a). Calculate Ecoland’s real GDP in 2018, i.e., GDP measured in 2014 $. (b) How much do households save in Ecoland? Is it enough to finance domestic investment? (c) Does the government have a balanced budget? If not, what is the surplus or deficit? (d) If Ecoland’s nominal GDP in 2018 is $1900 trillion, how much inflation has Ecoland experienced since 2014?Assume there is no discretionary increase in government spending. Explain how an improving economy will affect the budget balance and, in turn, investment and the trade balance.What happens to the following variables during an expansion? a. government budget deficits (surplus)
- Identify the negative macroeconomic outcomes that a government risks when it continues a sustained pattern of large budget deficits over timeReal government purchases may fall when the price level rises if which of the following is true? Group of answer choices A. Some parts of the government budget are fixed in nominal terms. B. All parts of the government budget are fixed in real terms. C. Governments always buy the same quantity of goods and services regardless of how much they cost. D. Governments prefer more expensive goods to less expensive goods because they create more jobs. Quantitative easing involves which of the following? Group of answer choices A. The use of open-market operations to increase the quantity of reserves held by the commercial banks B. The use of open-market operations to increase the quantity of reserves held by the Fed C. The reduction of reserves held by the commercial banks D. The reduction of the discount rate in order to stimulate lending by commercial banksNeed AI free solution Amid an economic recession, a government decides to implement an expansionary fiscal policy. This policy includes increasing government spending on infrastructure projects and reducing taxes to stimulate demand and create jobs. While the policy aims to boost economic activity, it also risks increasing the national debt and potentially leading to higher inflation. In this scenario, the primary objective of the expansionary fiscal policy is to: ) Reduce government spending and increase taxes A B) Stimulate economic activity and job creation C) Focus solely on long-term economic growth D) Increase the national debt and inflation
- Based on the Ricardian Equivalence, explain the impact of the debt-financed tax cut on public saving, private saving, and national saving.Which of the following statements are FALSE? (a) When the government prints money to buy goods and services the resulting inflation is a form of tax, since people will not have to pay more for their goods and services than before. (b) An effective fiscal policy macroeconomic stimulus should aim to replace private spending with public (government) spending. (c) To be effective a fiscal policy macroeconomic stimulus should have temporary increases in spending and permanent tax cuts. (d) The paradox of thrift is that the increase in saving during a recession because people postpone major purposes prolongs the recession and thus is not good for the economy, while normally saving grows the economy.Analyze fiscal policy in order the generate macroeconomic stability. Which kind of economic measures do you recommend at the current economic situation which is characterized as a stagflation situation? (use graphs)
- Which statement best explains why budget deficits may bring on a recession? a) Large deficits increase interest rates, attracting foreign investors. b) Persistent deficits lead to economic problems that scare away foreign investors. c) Spiraling national debt depresses private saving, reducing the amount of capital that can be invested. d) Deficit spending leads to a reduction in aggregate demand and a decrease in output.The Focus box “Can a Budget Deficit Reduction Lead to an Output Expansion? Ireland in the 1980s” provides an example of fiscal consolidation. Ireland had a large budget deficit in 1981 and 1982. Although the data shows strong output growth from 1987 to 1989, there is some evidence of continued macroeconomic weakness in Ireland during the second fiscal consolidation. What is that evidence?Identify how planned investment will change in each scenario. In an effort to reduce constant budget deficits, Congress announces plans to increase the corporate income tax rate. Due to the Congress, planned investment will increase, decrease, or stay the same? A major recession has reduced consumption spending, which has hurt profit levels for Aston-Benz, a high-end car manufacturer. Due to the recession, planned investment will increase, decrease, or stay the same?