(i) Explain the difference between discretionary fiscal policy and the automatic fiscal policy. (ii) The governmet has decided to cut its expenditure, and hence the government spending reduced by RM1 billion. The marginal propensity to consume is 0.8. Calculate the effect of the RM1 billion government spending reduction to the aggregate demand in the economy.

(i) Explain the difference between discretionary fiscal policy and the automatic fiscal policy. (ii) The governmet has decided to cut its expenditure, and hence the government spending reduced by RM1 billion. The marginal propensity to consume is 0.8. Calculate the effect of the RM1 billion government spending reduction to the aggregate demand in the economy.

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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