Draw an AD-AS graph plus the bond and forex markets. (You do not need the money market for this question.) Suppose that the government increases spending and finances that new spending by selling more Treasury bonds. a. Use your graphs to show and EXPLAIN how the increase in government spending would crowd out investment and probably worsen the trade balance (X-M). b. Why might crowding out be even more of an an issue in the long run? c. Why is crowding out less of an issue for the US than it might be for a developing country (like Venezuela, for example)?

Draw an AD-AS graph plus the bond and forex markets. (You do not need the money market for this question.) Suppose that the government increases spending and finances that new spending by selling more Treasury bonds. a. Use your graphs to show and EXPLAIN how the increase in government spending would crowd out investment and probably worsen the trade balance (X-M). b. Why might crowding out be even more of an an issue in the long run? c. Why is crowding out less of an issue for the US than it might be for a developing country (like Venezuela, for example)?

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter12: Fiscal Policy, Incentives, And Secondary Effects

Section: Chapter Questions

Problem 8CQ

See similar textbooks

Similar questions

The Social Security system levies a tax on workers and pays benefits to the elderly. Suppose that congress increases both the tax and the benefits. For simplicity, assume that the Congress announces that the increases will last for one year only. a. How do you suppose this change would affect the economy? (Hint: Think about the marginal propensities to consume of the young and the old.) b. Does your answer depend on whether generations are altruistically linked?
Suppose the US Federal Government decides to increase its spending without issuing debt by raising additional taxes (i.e., tax-financed government spending). Which of the following statements describes how tax-financed government spending affects the price level over the short run and the long run? The price level remains unchanged over the short run and the long run. The price level increases above it's initial level in short run and further increases over the long run. The price level decreases below it's initial level in the short run and further decreases over the long run. The price level decreases below its initial level in the short-run but increases above its initial level over the long run.
6. Use the following table to answer these questions: Y C I G X $ 500 $ 500 $ 10 $ 20 $ 60 $ 600 $ 590 $ 10 $ 20 $ 40 $ 700 $ 680 $ 10 $ 20 $ 20 $ 800 $ 770 $ 10 $ 20 $ 0 $ 900 $ 860 $ 10 $ 20 - $ 20 $ 1,000 $ 950 $ 10 $ 20 - $ 40 What is the Marginal Propensity to Import?
6. Use the following table to answer these questions: Y C I G X $ 500 $ 500 $ 10 $ 20 $ 60 $ 600 $ 590 $ 10 $ 20 $ 40 $ 700 $ 680 $ 10 $ 20 $ 20 $ 800 $ 770 $ 10 $ 20 $ 0 $ 900 $ 860 $ 10 $ 20 - $ 20 $ 1,000 $ 950 $ 10 $ 20 - $ 40 a.What is the Marginal Propensity to Import? b.What is the Marginal Propensity to Invetst? c.What the difference between both of…
Economist Arthur Laffer famously pointed out that, in some cases, income tax revenue can actually go up when tax rates go down. Why might this be the case?
When one focuses on aggregate demand and aggregate supply in macroeconomics, the main focus is on..... a. whether the goods are useful and wanted by consumers. b. whether the goods generate either positive or negative externalities c. what total spending is in relation to total production and its effects on the macroeconomic problems of unemployment and inflation d. both a) and b) are correct
posting this again, can you tell me which questions i've gotten wrong? i dont need any explanations for the ones i've gotten right. i just dont know which ones i've missed- if you could explain those that'd be fantastic. thanks 4- Tax cuts in the classical range of the AS will stimulate output and unemployment -false 5- Increasing welfare payments by borrowing money to do so will increase AD- true 6- if the mpc increases, the multiplier decreases- false 7- if the mps increases the multiplier decreases -true 8- part of the cost of growing government budget deficits is and “opportunity cost” of what else could have been done with the money, particularly if the borrowing is used to increase consumption spending. -true 9- tax cuts in the classical range of the AS curve will stimulate output and employment. -true 10- if the AS curve were flat/horizontal an increase in AD would not be inflationary- true 11- an increase in AD might be cause by improving technology in manufacturing processes.…
The table contains information about the nation of Syldavia. There are no income taxes or imports in this nation. Real GDP, Y (billions of 2012 dollars) Consumption expenditure, C (billions of 2012 dollars) Investment, I (billions of 2012 dollars) Government expenditure, G (billions of 2012 dollars) 15 6 5 5 20 10 5 5 25 14 5 5 30 18 5 5 35 22 5 5 The marginal propensity to consume in Syldavia is equal to A. 0.40. B. 5.00. C. 0.80. D. 0.75. E. 0.20.
True/False 11) The term ‘voodoo economics’ is a term used by the proponents of supply side economics trying to explain to its critics that lower tax rates will result in higher tax revenue.12) Barro is considered to be a supply side economist which is consistent with his idea that we should eliminate the corporate income tax.13) According to the table depicting the effective tax rate on capital for 2007, the only country that has a higher effective tax rate on capital is Greece.14) According to our discussion of supply side economics, there are positive aggregate demand side effects and positive supply side effects, similar to what happened during the new economy.15) We argued that the tax multiplier is higher in absolute value than the government spending multiplier.16) The more the Fed accommodates shocks to money demand, the larger the (government) spending multiplier.17) According to the Congressional Budget Office (CBO), the stimulus package worked in termsof creating jobs,…
3. Think about an anticipated fiscal policy that could help to fight unemployment without creating inflation. Use the Lucas model.
Suppose that the following equations describe the economy of the country of the Philippines.C= 500 + 0.8 (Y – T), I= 200, G= 300, NX= 50, T= 200, Yf= 5000; where C=consumption level, I=investment, G=government expenditures, NX=net exports, T=taxes and Yf=full employment output/income.Use this information to find each of the following:4.1. Investment, government and tax multiplier.4.2. Equilibrium output/income.4.3. The output gap.4.4. By how much would government expenditures have to change to eliminate the output gap?
Need help with this. THanks -When Government Spending increases by $10 B Aggregate Demand increases by MORE than $10 B. Which part of Aggregate Demand (C, I, G, or X?) increases so as to make this ripple effect, or multiplied impact, happen?