In a closed economy, fiscal authorities are deciding between the two following alternative policies: Policy A Increase government expenditure in 1000 million euros. Policy B: Decrease taxes in 1000 million euros. Both policies will increase the interest rate in the medium run, but the increase of i caused by policy A is larger than the increase caused by policy B.
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In a closed economy, fiscal authorities are deciding between the two following alternative policies:
Policy A Increase government expenditure in 1000 million euros. Policy B: Decrease taxes in 1000 million euros. Both policies will increase the interest rate in the medium run, but the increase of i
caused by policy A is larger than the increase caused by policy B.
T/F
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- Assume there is a decrease in the aggregate demand, if expansionary fiscal policy is being used, the following action could be taken a. increase consumption by raising disposable income through cuts in personal taxes or payroll taxes b. increasing government spending by raising after-tax profits through cuts in business taxes c. increase government purchases through increased Federal Government spending on final goods and services and raising grants to state and local government to increase their expenditures on final goods and services d. All of the aboveUsing the AE model, show the economy in equilibrium. Then, show the impact of an increase in government spending to reduce the unemployment rate.Would the above be considered expansionary or contractionary fiscal policy?Assume the change in government spending in above is $25 billion dollars and MPC = .95. What will be the change in GDP?Assume that fiscal policy can be accomplished by changing only one of G and T. In the IS-LM framework, suppose the effect on the general equilibrium output is the same between expansionary fiscal policy and expansionary monetary policy. Which one would you expect to have a greater impact on the equilibrium consumption?
- If the equilibrium real GDP were higher than potential GDP, then a contractionary fiscal policy would cause the inflation rate to be ________ and real GDP to be ________. a. higher; higher b. higher; lower c. lower; higher d. lower; lowerIf investment and consumption expenditures fall and cause GDP to fall, what is an appropriate fiscal policy? increase monetary base growth and decrease interest rates increase taxes and decrease government expenditures decrease monetary base growth and increase interest rates decrease taxes and increase government expendituresThe program has provoked a lot of political discussions. Which of the following statementsare correct (assuming a closed economy)? 1. The higher the marginal propensity to consume, the lower will be investment multiplier.2. A reduction of the tax rate lowers the fiscal policy multiplier.3. The higher the marginal propensity to consume, the more consumption can be induced bymore government spending, and this will lead to a higher fiscal policy multiplier.4. When fiscal policy is not able to compensate fully for other demand reductions, anexpansionary monetary policy can be helpful to overcome a recession more quickly.5. An expansionary monetary policy by the ECB in combination with a fiscal expansion willalways lead to inflation.6. Only a consequent fiscal consolidation will help the economy out of a recession.7. In the liquidity trap there is no crowding-out effect to be expected.8. It is best to conduct fiscal consolidation when the economy is in a boom.
- hi, posting this again. will you let me know if these are correct? 18- tax cuts directed at higher income individuals will do more to stimulate the economy than those directed to lower income individuals, in the keynesian model.-true 19- growing federal budget deficits are a problem cased by kenynesian economics- false 20- Keynes advocated using government deficits in times of depression -trueAccording to Keynesian analysis; the proper government response to a recession is _________,whereas an Austrian would support __________.A)expansionary fiscal/monetary policy; laissez-faireB)the implemention of a corporatist bailout of insolvent firms; raising taxesC)expansionary fiscal policy; expansionary monetary policyD)increasing government spending; increasing the legal powers of the central bank to deal withthe crisisWhich of the following statements about Fiscal Policy is INCORRECT? choose the correct answer(a) In order to combat inflation, the South African Reserve Bank must apply acontractionary fiscal policy;(b) A contractionary fiscal policy can result in higher levels of unemployment; (c) Expansionary fiscal policy will increase the budget deficit; (d) The application of fiscal policy will have no effect on aggregate supply in theAD‐AS model
- Which of the following is a category of fiscal policy?A) government policies regarding transfer payments and welfare benefitsB) government policies regarding the purchase of goods and servicesC) government policies regarding taxationD) all of the above Planned aggregate expenditure increases when ________ in the income-expenditure model.A) the government sector is excludedB) consumption is excludedC) the government sector is includedD) investment is excluded If output is greater than planned aggregate expenditure, there will beA) no change in inventories.B) a planned increase in inventories.C) an unplanned decrease in inventories.D) an unplanned increase in inventories. . During a recession, unemployment ________, tax revenue ________, and the budget deficit ________.A) rises; rises; fallsB) falls; falls; risesC) rises; falls; risesD) falls; rises; risesWhich of the following statements about Fiscal Policy is INCORRECT?(a) In order to combat inflation, the South African Reserve Bank must apply acontractionary fiscal policy;(b) A contractionary fiscal policy can result in higher levels of unemployment; (c) Expansionary fiscal policy will increase the budget deficit; (d) The application of fiscal policy will have no effect on aggregate supply in the AD‐AS model.Consider a closed economy with fixed prices and wages. Suppose consumption function takes the form C = 150+0,8Yd, Investments are I = 200, government purchases are G = 350, tax rate t= 0,1. There are no lump-sum taxes. (a) Calculate equilibrium output and Budget Deficit. Plot the planned aggregate spending line and show the equilibrium output. (b) If the Government decides to balance the Budget by changing the tax rate, what new tax rate the Government need to implement? (c) Calculate the new equilibrium output after the change in tax rate. Show how changes in the tax rate affect the planned aggregate spending line and new equilibrium output.