Suppose that Congress and President decide on lowering taxes and increasing government spending in the next fiscal year. According to the aggregate demand and aggregate supply model: O both the tax cut and the government spending would tend to increase the real GDP. only the tax cut would tend to increase the real GDP. neither the tax cut nor the increase in government spending would tend to increase the real GDP. O only the increase in government spending would tend to increase the real GDP.

Suppose that Congress and President decide on lowering taxes and increasing government spending in the next fiscal year. According to the aggregate demand and aggregate supply model: O both the tax cut and the government spending would tend to increase the real GDP. only the tax cut would tend to increase the real GDP. neither the tax cut nor the increase in government spending would tend to increase the real GDP. O only the increase in government spending would tend to increase the real GDP.

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter15: Fiscal Policy

Section: Chapter Questions

Problem 1SQ

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Similar questions

Changes in taxes The following graph plots an aggregate demand curve. Using the graph, shift the aggregate demand curve to depict the impact that a tax cut has on the economy. Suppose the governments of two very similar economies, economy B and economy A, implement a permanent tax cut of equal size. The marginal propensity to consume (MPC) in economy B is 0.7 and the MPC in economy A is 0.85. The economies are otherwise completely identical. The tax cut will have a larger impact on aggregate demand in the economy with the (SMALLER MPC or LARGER MPC).
Explain why increased government spending of, for example, $15 billion, will have a different impact on aggregate demand than a $15 billion tax cut.
Tax cuts shift aggregate demand A. right as do increases in government spending. B. left while increases in government spending shift aggregate demand right. C. left as do increases in government spending. D. right while increases in government spending shift aggregate demand left.
Suppose the US Federal Government decides to increase its spending without issuing debt by raising additional taxes (i.e., tax-financed government spending). Which of the following statements describes how tax-financed government spending affects real GDP over the short run and the long run? Real GDP rises above the natural level in the short run, but it falls below the natural level in the long run. Real GDP remains at the natural level in both the short run and the long run. Real GDP falls below the natural level in the short run, but it rises above the natural level in the long run. Real GDP rises above the natural level in both the short run and the long run.
Fiscal policy of increasing government expenditures can be more potent than monetary policy in getting us out of a recession because there is no lagged effect of fiscal policy on GDP Monetary policy produces too much uncertainty Monetary policy takes a lot of time to implement Fiscal policy has a larger multiplier effect
Why do Republicans like tax cuts? Why are tax cuts a good thing? How does it affect the aggregate supply and demand graph?