Q3 An advantage of automatic stabilizers over discretionary fiscal policy is thatautomatic stabilizers are not subject to the same time lags as discretionary fiscalpolicy.automatic stabilizers can be easily fine-tuned to move the economy to fullemployment.only the President is involved in implementing automatic stabilizers, instead of boththe President and Congress.the Ricardian equivalence theorem applies more readily to automatic stabilizers thanto discretionary fiscal policy.

Correct : automatic stabilizers are not subject to the same time lags as discretionary fiscal policy…

Answered: An advantage of automatic stabilizers…

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 2.9P

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Similar questions

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.
Specify whether expansionary or contractionary fiscal policy would seem to be most appropriate in response to each of the situations below and sketch a diagram using aggregate demand and aggregate supply curves to illustrate your answer: A recession. A stock market collapse that hurts consumer and business confidence. Extremely rapid growth of exports. Rising inflation. A rise in the natural rate of unemployment. A rise in oil prices.
Under what general macroeconomic circumstances might a government use expansionary fiscal policy? When might it use contractionary fiscal policy?
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
a) Define what are expansionary and contractionary discretionary fiscal policies. b) Define what is automatic stabiliser in fiscal policy and provide 2 examples. c) Consider an economy that is operating below the full-employment level of GDP, what would be the effect of an increase in government spending on agreegated demand and real GDP.
Explain the difference between “active” discretionary fiscal policy advocated by mainstream economists and “passive” fiscal policy advocated by new classical economists. Explain: “The problem with a balanced-budget amendment is that it would, in a sense, require active fiscal policy—but in the wrong direction—as the economy slides into recession.”
Please check the solution to (a) and (b) of the following problem for accuracy and elaborate: Given MPC (marginal propensity to consume) = 0.75, if the government implements an expansionary fiscal policy as (a) cutting taxes by $10 billion, then by how much would total spending increase over an infinite period? (b) spending $10 billion, then by how much would total spending increase over an infinite period? MPC = 0.75 Tax multiplier = (-MPC / 1) = (-0.75 / 1 – 0.75) = (-0.75 / 0.25) = -3. (a) Cutting taxes by $10 billion. The total spending increase by (-3) (-$10 billion) = $30 billion. Spending multiplier = (1/1 – MPC) = (1 / 1 – 0.75) = 1 / 0.25 = 4 (b) Spending 1ncrease by 10 billion. The total spending increase by (4) ($10 billion) = $40 billion.
(a) Assuming an economy is experiencing inflation, what are discretionary fiscal policy options that can be utilized by the government to address the situation? (b) Assuming an economy is in a recession, what are discretionary fiscal policy options that can be utilized by the government to move the economy out of the recession? (c) What is the difference between discretionary fiscal policy options and automatic stabilizers and explain how automatic stabilizers can be applied in an inflationary economy and a recessionary economy.
Suppose the government implements fiscal consolidation by cutting spending while the nominal interest rate is already at zero or near zero percent. Given πeequals to π ̅ , fiscal consolidation will likely lead to: a. Increasing inflation, decreasing real interest rate and a recession b. Increasing inflation and real interest rates, and a recession c. Deflation spiral, decreasing real interest rate and a recession d. Deflation spiral, increasing real interest rate and a recession e. All of the answers here are incorrect

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