If taxes are cut so that people have an increased incentive to work and businesses increased incentive to invest: O Aggregate supply will increase, aggregate demand will decrease and the price level will decrease. Aggregate supply will increase, aggregate demand will fall and the price level will increase. real national income and prices will increase, but aggregate demand and supply will fall. Both aggregate supply and demand will increase and real national income will increase.

If taxes are cut so that people have an increased incentive to work and businesses increased incentive to invest: O Aggregate supply will increase, aggregate demand will decrease and the price level will decrease. Aggregate supply will increase, aggregate demand will fall and the price level will increase. real national income and prices will increase, but aggregate demand and supply will fall. Both aggregate supply and demand will increase and real national income will increase.

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 2SQ

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If the government announces a decrease in spending with an increase in taxes, which of the following would most likely occur? a. a leftward shift of the aggregate demand curve b. a rightward shift of the aggregate demand curve c. an upward movement along the aggregate demand curve d. a downward movement along the aggregate demand curve e. no change in the aggregate demand curve as well as no movement along it
|An economy is in a below full-employment equilibrium. What is the effect on aggregate demand and real GDP, and the price level of fiscal stimulus that returns the economy to full employment? What is an example of fiscal stimulus that returns the economy to full employment from a below full-employment equilibrium? Fiscal stimulus that returns the economy to full employment _______ aggregate demand and real GDP, and the price level _______. A. increases; falls B. decreases; falls C. does not change; does not change D. increases; rises The fiscal stimulus that returns the economy to full employment from a below full-employment equilibrium _______. A. could be an increase in government expenditure and an equal increase in taxes B. could be a decrease in government expenditure and an equal decrease in taxes C. must be a decrease in taxes D. must be an increase in government expenditure
The task I am struggling with: In each of the following cases, either a recessionary or an inflationary gap exists. Assume that the aggregate supply curve is horizontal, so that the change in real GDP arising from a shift of the aggregate demand curve equals the size of the shift of the curve. Calculate both the change in government purchases of goods and services and the change in government transfers necessary to close the gap. a) Real GDP equals $100 billion, potential output equals $160 billion, and the marginal propensity to consume is 0.75. b) Real GDP equals $250 billion, potential output equals $200 billion, and the marginal propensity to consume is 0.5. c) Real GDP equals $180 billion, potential output equals $100 billion, and the marginal propensity to consume is 0.8 Thank you very much for your help.