Consider a Keynesian model but where investment (just like consumption) is increasing in aggregate income, e.g., because investment depends on business cash flow. Now that investment depends on aggregate income, a fiscal stimulus has more effect on equilibrium output. Answer true, false, or uncertain. Please briefly explain your answer

Q: The various kinds of automatic stabilizers are: Group of answer choices Expansionary Monetary Policy…

A: Automatic stabilizers are designed in such a manner that they automatically change as per the…

Q: In the IS/LM model, the fiscal policy multiplier with respect to interest rates is (α corresponds to…

A: The correct answer is given in the second step.

Q: If the consumer function has the form C = 100 + 0.8 (Y-T), where T is the level of lump-sum taxes,…

A: IS curve shows the combination of interest rate and the output level at which the goods market is in…

Q: Assume there is a decrease in the aggregate demand, if expansionary fiscal policy is being used, the…

A: Fiscal policy is the kind of policy using which government adjusts its spending levels and tax rates…

Q: please answer the following question: 1. Automatic stabilizers: A) work without the need for…

A: A boom illustrates a phase of elevated or rised growth within a business, market, industry, or…

Q: Assume there is a recessionary gap of $200 billion, and that the government has decided to engage in…

A: Answer; Multiplier = 1/(1 - MPC) = 1/(1-0.5) = 2

Q: Which of the following is an example of an automatic stabilizer? Congress legislates lower tax rates…

A: Automatic stabilizer are such policy tools that automatically adjust as per the need and situation…

Q: Consider two standard Keynesian models. In Model 1, there are two types of consumers, Type A, who…

A: Keynesian model: It refers to the economic theory which is related to the total spending of the…

Q: According to the Keynesian cross model, if the marginal propensity to consume is 3/4, an increase in…

A: when Government spending is increases income level in the market will be rise because government…

Q: According to the classical macroeconomic model, expansionary fiscal policy has an inflationary…

A: Fiscal Policy is a policy by which the governments adjusts its amount of expenditure and taxes…

Q: Fiscal Policy refers to the idea that aggregate demand is affected by changes in Question 58…

A: Fiscal policy is a tool of government which they use to control the economy stability.

Q: Suppose that the MPC is 0.60; there is no investment accelerator; and there are no crowding-out…

A: Multiplier can be calculated as follows: Multiplier=11-MPC=11-0.6=2.5

Q: Consider two policies: a tax cut that will last for only one year and a tax cut that is expected to…

A: Tax cut is the reduction of tax rate charged by the government. If the tax cut is for temporary or…

Q: 3. Automatic stabilizers: Group of answer choices work without the need for decisions from Congress…

A: An automatic stabilizer implies the market forces that act automatically in the market to correct…

Q: The fiscal multiplier is higher in the Keynesian Cross model compared to the IS-LM model True or…

A: A keynesian Cross model states a relation between aggregate expenditure and output. It explains how…

Q: Comparing the simple Keynesian model with the IS-LM model, in the IS-LM model   a. the balanced…

A: the entire government spending increase goes towards increasing aggregate demand, but only a portion…

Q: “Keynesian economists believe that the multiplier effect from a change in government expenditure on…

A: Keynes believed that the prices are sticky i.e they don't change that much and sellers like to keep…

Q: Which of the following is an appropriate fiscal policy response if the economy is in a state of…

A: The fiscal policy is the policy of the government in the economy to control the spending levels of…

Q: In the Keynesian model, an introduction of a proportional tax will: (a) increase the slope of the…

A: Proportional tax refers to a tax that takes the same percentage of income from people with all…

Q: In the simple Keynesian model, evaluate the government spending multiplier, the tax multiplier and…

A: The Keynesian school of economics rejects the classical assumption that views an economic system to…

Q: Fiscal policy works primarily through Shifts of the AD curve The improvement of worker skills…

A: Fiscal Policy: The term fiscal policy refers to the situation under which the government takes…

Q: Suppose aggregate demand is at AD2 and a recession occurs. The goal of an automatic stabilizer would…

A: A recession is a business cycle contraction that occurs when there is a broad fall in economic…

Q: Show the effect of the expansionary fiscal policy according to the new classical view by shifting…

A: Fiscal policy refers to the government policy regarding tax and government spending which stabilizes…

Q: Explain your decision making regarding government expenditure and how it changed based on the…

A: Fiscal policy is the utilization of government spending and tax collection to impact the economy.…

Q: Fiscal Policy) Define fiscal policy. Determine whether each of the following, other factors held…

A: Fiscal policy may be a government measure to stabilize the economy, specifically by manipulating the…

Q: According to traditional Keynesian analysis, a tax cut has a larger effect on aggregate demand than…

A: The traditional Keynesian analysis says that the government must increase the overall demand within…

Q: AS AD, AD AD, Real GDP Refer to the above diagram. An expansionary fiscal policy can best be…

A: In an expansionary fiscal, the government increases its spending or decrease in tax to increase the…

Q: Consider the Keynesian Cross model. If the fiscal multiplier equals 2, and the government decides to…

A: Fiscal multiplier =2 Increase government spending by 100

Q: Which of the following statements is FALSE?   A. An expansionary fiscal policy might consist of an…

A: Discretionary fiscal policy is a policy in which the government made changes in its spending and/or…

Q: Differentiate between the expansionary fiscal policy and contractionary fiscal policy with diagram…

A: Fiscal Policy: Fiscal policy is used to influence aggregate demand and maintain stability in the…

Q: If the Keynesian goods market multiplier is 2 and investment declines by €100 billion, then…

A: GDP is the value of final goods and services produced in the economy within a given period of time.

Q: Exhibit 24-1 shows the short run and long run equilibrium in an aggregate demand-aggregate supply…

A: Equilibrium real GDP is produced at the intersection of aggregate demand and aggregate supply…

Q: Contrast the effectiveness of fiscal policy in the AD-AS and IS-LM models.

A: Introduction Aggregate demand is a macroeconomic phenomenon that depicts an economy's total demand…

Q: Suppose that the MPC is 0.60; there is no investment accelerator; and there are no crowding-out…

A: The aggregate demand curve shows all the combinations of the quantity of real GDP demanded in the…

Q: What is one of the net effects of expansionary fiscal policy according to the Neoclassical view?…

A: The answer is - d. Increase of money supply

Q: Keynes believes that when the economy is in liquidity trap, fiscal policy is ineffective. True or…

A: When the economy is in liquidity trap, Monetary policy is ineffective. Fiscal policy is effective…

Q: Explain the role of supply-side policies in the macro-economy. In the context of your analysis…

A: Supply side policies are the policies which lead to increased growth by increasing the aggregate…

Q: Suppose we have the following information for the simple (fixed r, fixed P, fixed W) Keynesian…

A: T stands for Government revenue from tax. G stands for Government expenditure.

Q: ) increase by $160.

A: Answer Disposable income increased by $ 200 C = 400+ 0.8Yd de = 0.8 dYd Now, dyd = 200 So, de = 160

Q: Draw a macro equilibrium using AD/AS. Clearly label all important points on your graph.

A: The AD-AS model is a graphical model for analyzing economic swings that comprise AD (aggregate…

Q: With the aid of a diagram and using the Keynesian analysis, explain in detail how income and…

A: Keynesian analysis suggested that best way to move an economy out of recession was to increase…