If wages adjust fully to price increases in the long run, fiscal policy will Select one: O a. have no affect on either output or the price level. O b. have no affect on output. O c have no affect on the price level. O d affect both output and the price level.

If wages adjust fully to price increases in the long run, fiscal policy will Select one: O a. have no affect on either output or the price level. O b. have no affect on output. O c have no affect on the price level. O d affect both output and the price level.

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 1CQ

See similar textbooks

Related questions

Q: a. The Singapore Government strongly supports the idea of increasing Singapore's marginal tax rates…

A: Note: We will answer the first question as the exact one was not specified. Please resubmit a new…

Q: a. How much does aggregate demand need to change to restore the economy to its long run equilibrium?…

A: The aggregate demand curve would result in the downward sloping curve which has a relation between…

Q: Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household…

A: Aggregate demand is a total demand for final goods and services in the domestic economy at a…

Q: Everything else held constant, when financial frictions increase, the real cost of borrowing so that…

A: Financial friction: Financial friction is the gap between the return earned from the capital by the…

Q: Refer to the table below. Real Output Demanded, Billions Price Level Real Output Supplied,…

A: (a) Equilibrium exists when the quantity demanded is equal to the quantity supplied. At equilibrium,…

Q: The economy is able to self correct if: O prices and wages are flexible upward in recession O prices…

A: Economic self is the capacity of people and families to keep up with adequate pay to reliably meet…

Q: Case 3: Combating the Corona Crisis The Covid-19 induced economic recession is said to be caused by…

A: Demand refers to the total quantity of a particular good that consumer are willing and able to…

Q: Which of the following statements about the economic fallout of the Covid-19 pandemic is false? O.…

A: The Covid 19 pandemic is one of the uncertainties that influenced the economies of almost all the…

Q: (03.08 MC) What will be impact of an income tax increase on an economy's consumption spending, real…

A: * ANSWER :- As per guidelines I answered one (1st) question only please understood. * The OPTION A…

Q: A tax increase O a. increases aggregate demand and the AD curve shifts rightward. O b. decreases…

A: Aggregate demand (AD) curve depicts the inverse relationship between the price level and total…

Q: The government of the United States is worried that the inflation rate is too high. What fiscal…

A: Option D To reduce the inflation rate, the government has to undertake steps to reduce the level of…

Q: Refer to the table below. (SEE PICTURE) Suppose that aggregate demand increases such that the…

A: Equilibrium refers to the point where the demand curve intersects with the supply curve, here the…

Q: 3.125 points Seve An Suppose you are told that economists estimate, after the effects of all the…

A: The multiplier is the proportionate change of one factor on the other related factors. It helps in…

Q: Consider a baseline short run equilibrium where output is 16 trillion dollars, and the price level…

A: we know that equilibrium level is achieved where aggregate demand and aggregate supply are equal…

Q: Which of these is a negative effect of increasing price leve a. Increases the real value of money O…

A: Aggregate demand would increase.

Q: 10, Explain why extending unemployment insurance benefits has both a supply-side and demand side…

A: A government program that provides support to unemployed individuals in the form of income…

Q: Assume the economy is initially operating at the natural level of output. Which of the following…

A: The natural level of production of a system exists if all materials obtainable are used effectively.

Q: Aggregate price level LRAS SRAS AD Real GDP Yp Y1 potential output Reference: Ref 13-3 (Figure:…

A: Given:- Equilibrium is attained at point E1 and X-axis shows Real GDP and Y-axis shows Aggregate…

Q: When spending by the federal government exceeds net taxes, O a. the money supply must fall b.…

Q: The figure below shows the short-run aggregate demand and supply curves of an economy. In this…

A: NOTE: We’ll answer the first question since the exact one wasn’t specified. Please submit a new…

Q: Refer to Figure 12.2. Firms respond to a decrease in net taxes by mostly raising their prices when…

A: Option (d).

Q: Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household…

Q: Between early 2008 and the beginning of 2009, a gradual stock market crash and plummeting home…

A: Keynes believed that in short run, the wages are not as flexible. Wages are inflexible downwards as…

Q: Crowding out occurs when expansionary fiscal policy leads to O a higher money supply and a reduction…

A: Answer- Need to find- Crowding out occurs when expansionary fiscal policy leads to Evaluating the…

Q: If the long-run aggregate supply curve is vertical, the a change in net taxes on aggregate output in…

A: The long-run aggregate supply curve represents the output level an economy can achieve when all its…

Q: Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household…

A: We are going to use Output relation with government expenditure, Private consumption, Investment for…

Q: (e) If the government tries to counter the cost-push inflation with expansionary monetary and fiscal…

A: The expansionary fiscal policy i.e. increase in public spending and reduction on taxes or the…

Q: Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household…

A: Answer: It is given that for a 1% increase in household wealth the consumer spending will increase…

Q: c. Assume that the input price increases from $2 to $3 with no accompanying change in productivity.…

A: The ratio between the volume of output and volume of input for producing a ceratin product depicts…

Q: What is the effect of a rise in the money wage rate when the economy is at potential GDP? A rise in…

A: The payments done to workers in money form are known as money wage. It don’t realize of inflation…

Q: Explain why the NBER reported that the 2008 recession began before real GDP had fallen for two…

A: To determine the real GDP the NBER committee calculated the the real GDP and the real GDI (gross…

Q: When would the long-run aggregate-supply curve shift right? Select one: O a. When immigration…

A: Aggregate supply is the total supply of goods and services produced within an economy at a given…

Q: The aggregate supply curve shows the relationship between the price level and the: O potential GDP…

A: Supply refers to the quantity of the good which a producer is willing to produce and sell in the…

Q: A country's economy is close to full employment. The government then decides to launch a tax cut…

A: The economy is at full employment when it uses all its resources efficiently.

Q: a. How much does aggregate demand need to increase to restore the economy to its long-run…

A: Required increase in AD = Potential GDP - real GDP = (500 - 400) billion = $100 billion

Q: Aggregate demand measures: O the average price of all goods and services demanded. O the total…

A: Aggregate demand curve refers to a curve which is negatively sloped downward and to the right. It…

Q: Price level (GDP price Index, 2009 = 100) 1 50 1 40 130 120 110 100 90 AD 15 16 17 18 Real GDP…

A: The curve that depicts the quantities that buyers are willing to buy at various levels of price is…

Q: me that Country D is in a recession. 1. What fiscal policy actions would combat the recession? 2.…

A: when the country is in recession, the Aggregate demand is below the potential output level. The…

Q: According to your own point of view, which specific output gap most impacts the economy, the…

A: Inflationary gap measures the inflation where AD > AS ( at full employment level . ) This give…

Q: Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household…

A: Aggregate supply refers to the total supply available the market in a specific time period.…

Q: 5. Assume there is a decrease in the demand for goods and services, which leads to a decrease in the…

A: Gross Domestic Product (GDP) refers to the total number of goods and services produced and sold in…

Q: An economy has a recessionary gap. With no change in aggregate demand, how does the economy return…

A: In case of recessionary gap, Real GDP is less than Natural Real GDP. In case of long run…

Q: w much does aggregate demand need to change to restore the economy to its long-run equilibrium? ыlon…

A: In macroeconomics, a multiplier is an element of proportionality that actions how much an endogenous…

Q: The effects of a combined policy of fiscal expansion and monetary contraction will result in: A…

A: The monetary policy is the policy of the central bank regarding the money supply. The tools used…

Q: According to Keynesian analysis, the adoption of an expansionary fiscal policy will result in: O an…

A: Fiscal policy is a policy that the government uses to influence the economy. It aims at certain…

Question

If wages adjust fully to price increases in the long run, fiscal policy will
Select one:
Oa have no affect on either output or the price level.
O b. have no affect on output.
Oc have no affect on the price level.
O d. affect both output and the price level.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Introduction

VIEW

Answer

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

• Consider a baseline short run equilibrium where output is 16 trillion dollars, and the price level is 20. Note: In the Long Run Steady State Equilibrium, Price expectation is the same as price level & unemployment is 5% or lower. None of these are guaranteed in the short run. Usually, short run equilibrium is called an underemployment equilibrium.• Starting from the baseline, suppose COVID 19 hits this economy. Question What policies would you propose now (Monetary/Fiscal; Expansionary/contractionary)? As you know by now there are many different ways to implement Fiscal and Monetary policies. Which method did you select? (Cutting taxes, increasing taxes,reducing government expenditure, increasing government expenditure for fiscal policies, & lowering reserve ratio, increasing reserve ratio, OMO buying bonds, OMO selling bonds etc. for monetary policies.)
a) Suppose that there are no crowding-out effects and the MPC is 0.8. By how much must the government increase expenditures shift the aggregate-demand curve right $10 billion? b. The model of Long-run Growth, proposes that fiscal policy can have lasting effects on savings, investment, and economic growth. On the other hand, the model of Aggregate Demand-Aggregate Supply suggests that the only long run effect of fiscal policy is an increase in the price level. How could you use the Aggregate Demand and Aggregate Supply model for a more accurate description of the short-run and long-run effects of an increase in government spending? Could you distinguish between different uses of government expenditures to predict their effects on prices and output?
2) The short and medium run a) Suppose that the mark-up of goods prices over marginal costs is 10% and that the wage-setting equation is W = P(1 – u), where u is the unemployment rate. Calculate the real wage, asdetermined by the price-setting equation and the natural rate of unemployment. b) Consider a situation (A) where the government increases its spending G, while keeping thetaxes T unchanged leading to an expansionary fiscal policy. Show in diagram below, whathappens to output and prices in the (B) short run and (C) medium run? Don’t forget to label theaxis.(images)
Hi this question is for macroeconomics but on bartleby does not show any option for macroeconomics As a result of COVID-19, the Government of Canada has been actively using a discretionary fiscal stimulus policy. Using the Aggregate Supply – Aggregate Demand model, illustrate the intended impact of this policy on Aggregate Demand. Has the fiscal stimulus policy been effective? Why or why not? When the discretionary fiscal stimulus policy has ended, what actions with respect to the budget, will the government have to consider to address the debt level resulting from the discretionary fiscal stimulus policy?
Which of the following statements about the economic fallout of the Covid-19 pandemic is false? O. Congress acted quickly and responded with unprecedented stimulus programs tohelp households and business that have been hurt because of the Covid-19 pandemic.O. The financing of fiscal stimulus packages significantly reduced the ability ofprivate sector firms to borrow in the loanable funds market.O. In the early months of the Covid-19 pandemic, unemployment agencies wereunequipped to handle the large volume of insurance claims.O. Millions of people have become unemployed because of the Covid-19 pandemic.
What are the government’s fiscal policy options for ending severe demand-pull inflation? Which ofthese fiscal options do you think might be favored by a person who wants to preserve the size ofgovernment? A person who thinks the public sector is too large? How does the “ratchet effect”affect anti-inflationary fiscal policy?
consumers increased consumption by a relatively small amount in 2008 and 2009 because thet believe the tax cuts temporary. true or false
ax policy is one used not only for economic purposes but also for political purposes. It is the opinion of some economists and politicians that the rich should pay more of their income in taxes, and that the resulting fairness from this rise in taxes will lead to more economic growth and a rise in employment. Using the simple expenditure model (Y and Ep, not IS-LM) answer these two questions: One, would a lump-sum tax increase on many high-income households cause GDP to rise in the short run as predicted by the politicians? Why or why not? And two, are there macroeconomic conditions in the simple model under which such a tax increase would be fully warranted? Draw the graphs and explain the outcomes for both cases.
1. Fiscal Policya. Assume the Economy has an inflationary gap with above average price level, demonstrate this graphically and explain label the short run gdp with A.b. If the US has an MPC of 75% and the government decides to increase spending on social programs by $150 billion, what will happen to GDP (Y) and Price level (P) in the Short Run? Demonstrate and Explain. Label this point B.c. What Fiscal Policy should the Government implement (why?)? What Choices do they have? What will be the effects of this policy on the GDP? Demonstrate and Fully explain (hint: explain the steps as outlined in class)
An economy is in long-run macroeconomic equilibrium when each of the following aggregate demand shocks occurs. What kind of gap - inflationary or recessionary - will the economy face after the shock, and what type of fiscal policies would help move the economy back to potential output? How would your recommended fiscal policy shift the aggregate demandcurve? (Note: you do not need to draw anything).(a) A stock market boom increases the value of stocks held by households.(b) Firms come to believe that a recession in the near future is likely.(c) Anticipating the possibility of war, the government increases its purchases of military equipment.(d) The quantity of money in the economy declines and interest rates increase.
2. Suppose the economy is in recession. Policymakers estimate that aggregate demand is$100 billion short of the amount necessary to generate the long run natural rate of output.That is, if aggregate demand were shifted to the right by $100 billion, the economy would be inlong run equilibrium.a. Explain the impact on the economy if the government chooses to use fiscal policy to stabilizethe economy and the marginal propensity to consume (MPC) is given as 0.75 with no crowdingout.b. If there is a crowding out effect and investment is very sensitive to changes in the interest rate,should the government increase spending more or less than this amount?
A. Assume that a hypothetical economy with an MPC of .75 is experiencing severe recession. By how much would government spending have to rise to shift the aggregate demand curve rightward by $70 billion? B. How large a tax cut would be needed to achieve the same increase in aggregate demand?