Assume that fiscal policy can be accomplished by changing only one of G and T. In the IS-LM framework, suppose the effect on the general equilibrium output is the same between expansionary fiscal policy and expansionary monetary policy. Which one would you expect to have a greater impact on the equilibrium consumption?

Assume that fiscal policy can be accomplished by changing only one of G and T. In the IS-LM framework, suppose the effect on the general equilibrium output is the same between expansionary fiscal policy and expansionary monetary policy. Which one would you expect to have a greater impact on the equilibrium consumption?

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter9: The Keynesian Model In Action

Section: Chapter Questions

Problem 18SQ

See similar textbooks

Similar questions

Assume that fiscal policy can be accomplished by changing only one of G and T. In the IS-LM framework, suppose the effect on the general equilibrium output is the same between expansionary fiscal policy and expansionary monetary policy. Which one would you expect to have a greater impact on the equilibrium consumption?
Please answer all the three An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift up, the equilibrium level of aggregate output to__________ and the IS curve to shift to the__________ everything else held constant. A) fall; right B) rise; left C) fall; left D) rise: right Which of the following statements concerning IS-MP analysis is true? A) Changes in net exports arising from a change in interest rates causes a shift in the IS curve. B) Expansionary fiscal policy will cause the interest rate to fall. C) A fall in the money supply shifts the LM curve to the right. D) For a given change in taxes, the IS curve will shift less than for an equal change in government spending. LVTS participants with positive settlement balances at the end of the day.________ A) are paid the overnight rate B) are paid the bank rate less 50 basis points C) are paid the prime rate D) are paid the bank rate
Consider the IS/LM model. Show the effects of the following policies on Y and r on a graph: a) Contractionary fiscal policy b) Expansionary fiscal policy
Explain by means of aggregate demand equation and IS-LM model graphs the concept behind Fiscal Policy and how Fiscal Policy is different from Monetary policy.
Consider a closed economy with fixed prices and wages. Suppose consumption function takes the form C = 150+0,8Yd, Investments are I = 200, government purchases are G = 350, tax rate t= 0,1. There are no lump-sum taxes. (a) Calculate equilibrium output and Budget Deficit. Plot the planned aggregate spending line and show the equilibrium output. (b) If the Government decides to balance the Budget by changing the tax rate, what new tax rate the Government need to implement? (c) Calculate the new equilibrium output after the change in tax rate. Show how changes in the tax rate affect the planned aggregate spending line and new equilibrium output.
Show using the IS-LM graph the impact of an expansionary fiscal policy if the LM curve is vertical. If you were the Economic Planner in this country, how would you implement the fiscal policy without causing any crowding out of private investment? (You may insert a snapshot of the graph if drawn manually
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 above
Suppose the economy has a recessionary gap. By using an expansionary fiscal policy, the Federal Government can close this gap by A.)increasing government spending in order to increase aggregate demand. B.)reducing taxes in order to stimulate investment, and thus increase aggregate supply. C.)increasing government spending and taxes in order to both increase aggregate demand and aggregate supply D.)decreasing government spending in order to increase aggregate supply.
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 rates
Assume that a hypothetical economy with an MPC of 0.75 is experiencing severe recession. Instructions: In part a, round your answers to 2 decimal places. Enter positive numbers. In part b, enter your answers as whole numbers. a. By how much would government spending have to rise to shift the aggregate demand curve rightward by $40 billion? $ billion. How large a tax cut would be needed to achieve the same increase in aggregate demand? $ billion. b. Determine one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt (because it maintains a balanced budget, G = T). Increase spending by $ billion. Increase taxes by $ billion.
“Expansionary fiscal policy is more effective in influencing the aggregate income level when investment is interest-elastic”. Do you agree with this statement? Why and why not? Explain your answer based on the IS-LM framework.
Assume a contradictory gap of $4 trillion. With MPC equal to 0.75, what would be the recommended fiscal policy action in order to return output to full employment levels?