In the graph to the right, suppose the economy is initially at point A. The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Congress and the president? O A. a decrease in income taxes O B. a decrease in government purchases O C. a decrease in interest rates O D. an increase in the money supply Price level LRAS B SRAS AD₂ AD₁ Real G

In the graph to the right, suppose the economy is initially at point A. The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Congress and the president? O A. a decrease in income taxes O B. a decrease in government purchases O C. a decrease in interest rates O D. an increase in the money supply Price level LRAS B SRAS AD₂ AD₁ Real G

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 5P

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Under what general macroeconomic circumstances might a government use expansionary fiscal policy? When might it use contractionary fiscal policy?
The graph below shows real GDP levels over time. Answer the following questions based on this graph. Real GDP Business Cycle A Time a. At time T, what is the economy experiencing? O an economic expansion O full-employment output O an economic contraction b. In order to smooth out the business cycle, what type of fiscal policy should the government undertake? O expansionary fiscal policy O contractionary fiscal policy c. What type of actions might the government take? O a decrease in taxes and an increase in government purchases O an increase in taxes and a decrease in government purchases O a decrease in both taxes and government purchases. O an increase in both taxes and government purchases
Imagine that a group of advisors to the president has suggested providing a tax cut for the middle class in order to stimulate the economy and reduce unemployment. The president has asked for your analysis of this proposed tax cut. Post your thoughts both as an economic scientist and economic policy advisor. Read the scenario and, respond to the following: Describe how an economic scientist would approach the tax cut recommended by the advisors in the scenario you just read. What are some economic factors that the economic scientist would consider when crafting his or her statement on the tax cut proposed? Describe how an economic policy advisor would approach the same tax cut and provide the reasoning behind the position. Remember to think like an economist scientist and economic policy advisor when you write your post, even if it goes against your own opinions about whether a tax cut is a good idea. To guide your responses, consider the following questions: What economic…
Which of the following is NOT a tool of fiscal policy. O taxes O government spending Onterest rates none of the above Question 2 Assume the economy is in a deep recession. The appropriate fiscal policy response would be to: raise taxes and raise govemment expenditures cut taxes and cut govermment expenditures raise taxes and cut government expenditures O cut taxes and increase government expenditures D Question 3 Crowding out refers to the fact that: Tax cuts will cause inflation O Tax cuts may result in higher interest rates which will "crowd out" business investment spending O increased government spending will crowd out spending on imports none of the above
Figure 8-23. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. 6 on4m21 3 Tax Revenue B Tax Size Refer to Figure 8-23. If the economy is at point A on the curve, then a small increase in the tax rate will O increase the deadweight loss of the tax and increase tax revenue. O increase the deadweight loss of the tax and decrease tax revenue. decrease the deadweight loss of the tax and increase tax revenue. O decrease the deadweight loss of the tax and decrease tax revenue.
Consider the following picture. c' A D B E F Suppose that the government changes government spending: it increases G and decreases G', but leaves T and T' unchanged. The interest rates in the economy are also unchanged. What happens to the budget line of the consumer? O It expands to the right: the consumer will be able to consume more in the present, and less in the future It contracts to the left: the consumer will be able to consume less in the present, and more in the future O It's unchanged O Impossible to tell!
When the economy is in a recession, the government can use expansionary iscal policy to stimulate and encourage économic growth. Which of the following scenarios represent expansionary fiscal policies from both a supply perspective and a demand perspective? Choose one or more: OA The Federal Reserve increases the money supply and lowers the interest rate while the government simultaneously reduces future taxes. OB. The government lowers tax rates and issues a partial refund of taxes that have already been paid. OC The government raises tax rates and reduces payments of unemployment benefits. OD The government lowers tax rates and undertakes a replacement.of old bridges and roads. Suppose that, during a recession, the government borrows money to provide free wireless Internet access in urban areas. Whichof the following statements are correct? Choose one or more: RA This policy will likely be accompanied by an impact lag as the policy takes time to make its way to the people. O B. The…
Rea Which of the following is true according to mainstream economics? O Ifa balanced budget amendment to the Constitution were ratified, we should expect the Federal Reserve and Monetary Policy to be less important OIf a balanced budget amendment to the Constitution were ratified, we should expect Fiscal Policy to become more effective three of the answers listed are correčt O Ifa balanced budget amendment to the Constitution were ratified, we should expect worse recessions If a balanced budget amendment to the Constitution were ratified, we should expect milder recessions 05:24 troduction A ENG 8°C O 23-12-2021 P Type here to search SUS prt sc f11 f12 pause break delete insert f9 f10 f8 ロ/京 f3 f4 f5 f6 f7 esc sysrq & backspace 2 3 4 5 6 7 { } Q E Y U P. 86 2T %23
a. In the textbook, you read that Tyler does not save and planaccording to the theory of Ricardian equivalence but Alex is moreof a “Ricardian.” In light of this, who probably cuts back theirspending the most when taxes temporarily rise: someone like Tylerwho is not “Ricardian” or someone like Alex who is?b. If the U.S. government wants to use fiscal policy to shift ADaround easily, which one would the U.S. government prefer tomake more copies of: Tyler or Alex?
Figure 8-24. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. 9 Tax Revenue a∞rontm ~ - X 8 7 6 5 4 3 2 1 A B Refer to Figure 8-24. Tax revenue would [I B. All of the above are correct. A. decrease if the economy began at point C and then the tax rate was increased. Answer Key:B Tax Size OC. decrease if the economy began at point B and then the tax rate was decreased. D. increase if the economy began at point F and then the tax rate was decreased.
Which of the following would be classed as an expansionary fiscal policy? O A. An increase in the money supply Ов. A reduction in the number of goods exempted from VAT An increase in government taxation OD. An increase in government expenditure
QUESTION 6 In the diagram below, what would happen if the government were to increase spending on goods and services? CWJ W O a. The line marked W would shift downwards and national income would move towards its equilibrium level O b. The line marked J would shift upwards and national income would move towards its equilibrium level O c. The line marked W would shift upwards and national income would move towards its equilibrium level O d. The line marked J would shift downwards and national income would move towards its equilibrium level