LRASPricelevelAS,AS,p.aSAD,AD1龍Yc Yf YoReal GDP per yearRefer to the figure above. If the economy is at point b, to close theoutput gap the appropriate fiscal policy would includeO increasing government purchases and/or increasing transfer payments.O decreasing government purchases and/or increasing transfer payments.O increasing government purchases and/or decreasing transfer payments.decreasing government purchases and/or decreasing transfer payments.C.

When the economy is at point B, the gap is inflationary gap. The actual output is higher than…

Answered: Refer to the figure above. If the…

Refer to the figure above. If the economy is at point b, to close the output gap the appropriate fiscal policy would include

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 3P

See similar textbooks

Related questions

Q: Is expansionary fiscal policy more attractive to politicians who believe in larger government or to…

A: The expansionary fiscal policy is more attractive to politicians who believe in larger government.…

Q: A contractionary fiscal policy shifts the aggregate demand curve leftward. true or false?

A: Fiscal Policy: It refers to the decision of the government regarding spending and taxation.…

Q: The change in aggregate demand that results from fiscal expansion changing the interest rate is…

A: Crowding out Effect states that government spending is increased in order to balance the reduction…

Q: discuss the economic implications of Joe Biden’s fiscal stimulus for the US economy and the…

A: The economies around the globe are focused on their development and growth in various areas. The…

Q: Assume there is a recessionary gap of $200 billion, and that the government has decided to engage in…

A: Answer; Multiplier = 1/(1 - MPC) = 1/(1-0.5) = 2

Q: Expresses in detail the effects of expansionary and contractionary fiscal policy on income and the…

A: In an economy, fiscal policies are implemented by the government to influence the aggregate demand…

Q: Define and give three examples of automatic stabilizers

A: Automatic stabilizers are the ones that get automatically adjusted without government interference…

Q: Which of the following is an example of an automatic stabilizer? Congress legislates lower tax rates…

A: Automatic stabilizer are such policy tools that automatically adjust as per the need and situation…

Q: Based on your understanding of the multiplier effect and the crowding-out effects, do you think that…

A: The macroeconomic equilbrium in an economy occurs at the point where the aggregate demand in the…

Q: _____ are elements of fiscal policy that automatically change when income changes. a. Budget…

A: Fiscal policy is one of the tools of the government to influence macroeconomic conditions such as…

Q: The advantage of automatic stabilizers over discretionary fiscal policy is that A) automatic…

A: “Hey, since there are multiple questions posted, we will answer first question. If you want any…

Q: Define what is 'automatic stabiliser' in fiscal policy, and provide 2 examples

A: Meaning of Fiscal Policy: The term fiscal policy refers to the situation under which the…

Q: Several problems of timing may arise in connection with fiscal policy. Which of the following is not…

A: There are some limitations of the fiscal policy(FP). The main limitation is that the policy includes…

Q: Refer to Figure 10-1. If the economy is below full-employment real GDP, what will the new long-run…

A: The measure that epicts the final value of goods and services being produced in the economy during…

Q: f the government were to implement a fiscal policy during a case of recession, all of these proposal…

A: The ‘fiscal policy’ indicates the use of the ‘government spending’ & ‘tax policy’ to influence…

Q: Which of the following is NOT a fiscal policy action? Group of answer choices decreasing government…

A: The answer is - raising the quantity of money in circulation

Q: If the government increased spending by $8 million as part of expansionary fiscal policy, calculate…

A: MPC is the marginal propensity to consume, which is the proportion of change in income spent on…

Q: Why the aggregate supply (AS) curve is relatively flat within the low ranges of aggregate output and…

A: Aggregate supply refers to the total value of goods and services available for purchase at a…

Q: Create a graph with an aggregate demand curve and an aggregate supply curve in the short-run. Use…

A: An Aggregate Demand-Aggregate Supply model is a macroeconomic model that represents the incumbent…

Q: If the president and parliament agree on a policy to reduce the budget deficit by increasing taxes…

A: If the government deicides to adopt a contractionary fiscal policy by increasing the taxes,…

Q: In a recession, needs-tested spending ________ and induced taxes ________. increases; increase…

A: Fiscal policy has two major parts: government spending(G) and taxes(T). Needs tested spending is the…

Q: Which one of the following propositions would be consistent with a supply-side view of fiscal…

A: Macroeconomics analyzes the economy as a whole. It studies aggregate economic concepts such as…

Q: How relevant is the multiplier concept to the implementation of expansionary and contractionary…

A: Spending multiplier: - it is a fraction that shows the magnitude of the change in national income…

Q: (Fiscal Policy) Define fiscal policy. Determine whether each of the following, other factors held…

A: Answer- Fiscal Policy - This is a policy which a government adjusts its spending levels and tax…

Q: Suppose that the government provides each taxpayer with a $1,000 tax rebate financed by issuing…

Q: Use the AS/AD diagram to show( graphically only) the short term and long term effects of restrictive…

A: Restrictive fiscal policy leads to the fall in the AD and recessionary pressure rises up in the…

Q: Complete the following sentence. As it relates to fiscal policy, a budget deficit exists when:Choose…

A: A budget deficit occurs when a government spends more in a given year than it collects in revenues,…

Q: In mid-2001, the Bush administration won congressional approval for lower income tax rates. One…

A: Supply-side policies are based on the concept that tax cuts for producers and providers of commodity…

Q: Automatic stabilizers are increases in spending and reductions in taxes that_ Are enacted by the…

A: Answer: Correct option: C (Are the result of existing tax and revenue spending rules) Explanation:…

Q: Explain by means of aggregate demand equation and IS-LM model graphs the concept behind Fiscal…

A: The policy makers are the decision making authorities, which makes decisions regarding which…

Q: Explain how fiscal policy can be implemented if an economy is in the downswing of a business cycle.

A: Fiscal policy is tools available to the central government to mitigate the economic consequence by…

Q: Classify each statement as an example of expansionary fiscal policy, contractionary fiscal policy,…

A: Contractionary fiscal policy: Contractionary fiscal policy refers that when the government decreases…

Q: What action could the TCMB take to reduce the crowding-out effect of an expansionary fiscal policy?

A: Expansionary fiscal policy involves increasing government spending or decreasing taxes, which…

Q: Suppose the economy is in a recession. In this case automatic stabilizers will

A: Automatic Stabilizers are defined as government policies which automatically adjust the tax rates…

Q: What issue or problem in the economy would be fixed with expansionary fiscal policy? Contractionary…

A: Expansionary-Fiscal policies are targeted towards increasing the consumption in the…

Q: Identify one fiscal policy action that could counter the increase in investments. Explain how this…

A: Fiscal policies are actions taken by the government to stabilize the economy. The policies include…

Q: Assume a contradictory gap of $4 trillion. With MPC equal to 0.75, what would be the recommended…

A: The use of government spending and tax policies to influence economic conditions, especially…

Q: As the economy declines into recession, the collection of personal income tax revenues automatically…

A: A recession is a significant slowing or contraction of the economy. A recession typically results…

Q: Explain how the implementation of this policy is related to the simple spending multiplier. Explain…

A: Fiscal policy is a branch of monetary policy where the government try to manage the or adjust the…

Concept explainers

Fiscal Policy and Money Market

Fiscal policy is one of the important tools that is used by the government to control inflation or aggregate demand in the economy. Under this policy, there are two rules which are used by the government, one is the expenditure of the government and the other is the taxation or income of the government which it collects from the public.

Question

100%

LRAS
Price
level
AS,
AS,
p.
a
SAD,
AD1
龍
Yc Yf Yo
Real GDP per year
Refer to the figure above. If the economy is at point b, to close the
output gap the appropriate fiscal policy would include
O increasing government purchases and/or increasing transfer payments.
O decreasing government purchases and/or increasing transfer payments.
O increasing government purchases and/or decreasing transfer payments.
decreasing government purchases and/or decreasing transfer payments.
C.

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

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

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

Under what general macroeconomic circumstances might a government use expansionary fiscal policy? When might it use contractionary fiscal policy?
Why is spending by the U.S. government on scientific research at NASA fiscal policy while spending by the University of Illinois is not fiscal policy? Why is a cut in the payroll tax fiscal policy whereas a cut in a state income tax is not fiscal policy?
What are some of the ways fiscal policy might encourage economic growth?
Explain how automatic stabilizers work, both on the taxation side and on the spending side, first in a situation where the economy is producing less than potential GDP and then in a situation where the economy Is producing more than potential GDP.
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?
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?
(a) Assume Consumption (C) is given by the equation C = 500 + 0.6(Y – T). Taxes (T) are equal to 600. Government spending is equal to 1,000. Investment is given by the equation I = 2,160 – 100r, where r = the real interest rate = 13 percent. In this case, what is the equilibrium Gross Domestic Product (GDP)/Total output (Y)/Total income? How does the equilibrium income change if government designs and executes expansionary fiscal policy? Show graphically and mathematically.
A. Calculate the levels of consumption and savings that occurs when the economy is in equilibrium. B. Computer the government budget deficit in this economy. C. If government spending in banana land increases by $1000 what is the amount of the increase in equilibrium output? D. If taxes in banana land decrease by $1000 what is the new equilibrium output in this economy? E. To keep the government budget balanced, of both government spending and taxes in banana land increase by $1000 what is the change in equilibrium income level?
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?
a) What are the three fiscal policy tools and how would each be used to counter a contractionary gap? b) True or False and explain: Fiscal Policy is effective at reducing the duration of an economic contraction. c) If the spending multiplier is 2.5 and the economy is in a $500 billion contractionary gap, how much should I increase government purchases to eliminate the gap? d) Continuing with c, if the MPC is 0.8, how much would I need to increase transfer payments to eliminate the $500 billion contractionary gap? e) True or False and explain: Households always react to tax changes in a predictable manner. Module 6: Deficits and the Debt. a) Distinguish between deficit and debt. b) Explain what crowding out is and why it reduces the impact of fiscal stimulus. c) True or false and explain: The national debt represents a threat of bankruptcy. (For d and e) Suppose the interest on the debt was $600 billion. If interest is paid domestically, 90% will be spent domestically (the remainder is…
Suppose equilibrium GDP is less than full-employment output and the economy is in a recession. What are the appropriate fiscal policies that would take the economy to full employment level? A) Increase Taxes B) Decrease governmnet spending C) Lower transfer payments D) Decrease Taxes