An expansionary fiscal policy shifts the aggregate demand curve Select one: a. to the right and is used to close an inflationary gap. b. to the right and is used to close a recessionary gap. c. to the left and is used to close an inflationary gap. d. to the left and is used to close a recessionary gap.
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- A $100 million decrease in government expenditures (G) leads to an even larger decrease in aggregate planned expenditures (GDP) because of Question 5Answer a. changes in induced aggregate supply. b. changes in induced consumption. c. the effects of discretionary fiscal policy. d. the effects of automatic fiscal policy.An expansionary fiscal policy is usually employed by the government to a. shift the short-run aggregate supply curve rightward b. close a recessionary gap in an economy c. close an expansionary gap in an economy O d. shift the short-run aggregate supply curve leftward Chconsider each fiscal policy listed here, which policies would shift the aggregate demand curve in the way that restores full employment output at the lowest possible price level check all that apply. Cut taxes by 60 billion. Decrease taxes by 80 billion and decrease government expenditures by 20 billion Increase government expenditures by 50 billion and raise taxes five40 billio Increase government expenditures by 60 billion and raise taxes by 60 Reduce government expenditures by 30 billion
- Country D experiences a recession due to a decrease in consumer confidence. There are two economists, Andrew and Betty. Betty suggests the government to do nothing. Andrew suggests the government to implement fiscal policies to revive the economy as soon as possible. If the government adopts Betty’s policy, draw an AD-AS graph to show what happens to the economy in short run and then long run after the decrease in consumer confidence. Suppose the government adopts Andrew’s policy. (i) Will the government increase or decrease spending? (ii) The government cuts the income tax rate. After cutting the income tax rate, the total income tax revenue collected increases. Explain why. (iii) Will Andrew’s policy be more effective if MPC is smaller? Give one advantage of Betty’s policy over Andrew’s policy.The federal government implements an expansionary fiscal policy of increased spending and decreased taxes. Policy advisors predict output will increase 4% but are surprised when only 3% growth occurs. What might account for the fact that GDP increased by less than the multiplier predicted? a. Policy advisors' calculation of MPS was too high b. The aggregate supply curve was perfectly elastic c. Foreign purchases of domestic goods was greater than expected due to a devalued currency d. Consumption increases more than expected because of the decrease in taxes e. Investment decreased due to rising interest ratesExpansionary fiscal policy will: a shift the aggregate demand curve left. b shift the aggregate demand curve right. c shift the short-run aggregate supply curve left.
- Which of the following statements is FALSE? A. An expansionary fiscal policy might consist of an increase in transfer payments, B. An investment tax credit is an example of expansionary fiscal policy C. An expansionary fiscal policy seeks to shift aggregate demand to the right D. Discretionary fiscal policy is always expansionary1) Define MPC(marginal propensity to consume) and MPS(marginal propensity to save) 2) Define multiplier effects, based on Keynesian Fiscal policy. 3) When economy falls into a recession, what kind of fiscal policy is needed? Give a specific tool of fiscal policy. 4)Discuss the long run effects of "Crowding out" due to a short run expansionary fiscal Policy. 5) Treasure Hunt: a) Go to www.cengage.com/sso (Links to an external site.)Links to an external site. web site. At Bookshelf of Arnold economics of 11th edition, click Economics Course Mate of Economics(11th ed) by Roger A Arnold . Then, click "select chapter" for Ch 11 and try Ch11: Fiscal policy to get access to " Video Office hours " left menu bar. Summarize the contents of "Video Office hours". (3 points) b) Summarize the contents of "Working with Diagrams" of Ch 8 , 9 , 10…Assume that country has a MPS of 0.2. Calculate the maximum change in Real GDP as a result of the fiscal policy action. Also, indicate if it is an increase or decrease. a. The government increases spending by $6 million. b. The government decreases taxes by $8 million. c. The government increases taxes by $100 million. d. The government decreases spending by $15 million.
- a) Draw an aggregate demand/aggregate supply graph of an economy in a Recessionary situation. b) show clearly the GDP gap on your graph. c) examine the impact of the fiscal policy described above on the relevant components of AD and SRAS( if applicable). Account for the role of the autonomous spending multiplier.Assume there is a decrease in the aggregate demand, if expansionary fiscal policy is being used, the following action could be taken a. increase consumption by raising disposable income through cuts in personal taxes or payroll taxes b. increasing government spending by raising after-tax profits through cuts in business taxes c. increase government purchases through increased Federal Government spending on final goods and services and raising grants to state and local government to increase their expenditures on final goods and services d. All of the aboveQuestion 4. Due to COVID-19 Pandemic, the economy of Finland is in a recession. The government is planning to increase government spending by 30 billion euros. Assume that marginal propensity to consume is 0.75 and there is no crowding-out effect. Define this policy measure and its consequences. Quantify the total effect of an increase in government spending on aggregate demand. Compare if the tax cut of 30 billion euros would lead to the same result. Discuss how can the crowding-out effect change the consequences of an increase in government spending.