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- Question 2 Answer the questions on the effects of active fiscal policy on the economy in various scenarios: Suppose, the financial crisis in Asia Pacific region reduces the demand for Singaporean exports. This negative demand shock severely affects Singapore which is a small open economy. As a result, Singaporean economy went into recession (output falls below the potential level). Assume, economy was in good shape before the shock (operating at its potential capacity Y*). Suppose the government of Singapore decide to boost its spending (G) to counteract the fall in AD due to fall in exports (NX component of AD). Do you think government has to increase G by the same amount as fall in NX? Explain your reasoning in 50 words or less. Is crowding out a concern here?If the effects of expansionary fiscal policy are delayed by recognition, implementation and impact lags lang enough that the economy has moved to a different stage of the business cycle, then the policy will lead to a budget surplus. the policy will have no effect. the effects could lead to even deeper recession. it may lead to excessive aggregate demand and inflation.Fiscal policy consists of the executive branch's decisions to tax and spend. If the economy is in an expansionary mode just coming out of a recession, in regards to aggregate demand and aggregate supply, we can assume that a tax hike will lead to a. aggregate supply to shift inward. b. the economy expanding even more as a result. c. aggregate demand to shift inward. d. no changes will occur. e. aggregate demand and supply to shift inward.
- Let’s assume that the economy in the United States is higher than the potential GDP. If the government uses a contractionary fiscal policy to decrease GDP, the: Group of answer choices aggregate demand curve will shift to the right. aggregate supply curve will shift to the left. aggregate supply curve will shift to the right. aggregate demand curve will shift to the left.Q.1.4 Which of the following statements about Fiscal Policy is INCORRECT? (2)(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.An expansionary fiscal policy is usually employed by the government to a. shift the short-run aggregate supply curve rightward b. close a recessionary gap in an economy c. close an expansionary gap in an economy O d. shift the short-run aggregate supply curve leftward Ch
- Aggregate Supply and Aggregate Demand show the relationship between economic output (GDP) and price levels in the macro-economy at a given point in time. Define the terms ‘Aggregate Demand’ and ‘Aggregate Supply.’ State TWO (2) monetary and TWO (2) fiscal policies that government can adopt, to effect change in Aggregate Demand.Finance Minister Enoch Godongwana announced during his budget speech that South Africans can receive up to R15,000 in tax rebates for solar panels starting from 1 March" This is an example of... O A. Fiscal policy B. Monetary policy O C. Income policy O D. Foreign trade policyIdentify the statement as True, False, or Uncertain, and explain your reasoning in detail (graphs if possible) Assume that workers supply effort based on their expected real consumption wage and consume a basket with a non-negligible component of imported goods and services. The government in an open economy implements a contractionary fiscal policy (from an initial medium-run equilibrium) motivated, for example, by its desire to reduce national debt. This leads to lower real wages and higher unemployment in equilibrium. Hint: you may want to compare this with the case in which the initial two assumptions do not hold.
- Determine how each of the following monetary or fiscal policy would shift the aggregate demand curve. Illustrate and explain the following effect. a. Assuming the economy is currently producing above the full employment output, the government decided to increase the personal income tax as a form of contractionary fiscal policy. Illustrate and explain the effect of the policy using AD-AS curve. b. With the recession due to COVID-19, the central bank has decided to lower down discount rates and reserve requirements of the commercial bank. Illustrate and explain the effect of the policy using AD-AS curve.One of the main arguments against using Fiscal Policy is the crowding out effect. Suppose the government uses government purchases to stimulate the economy. Explain quantitative easing? If the Fed’s current policy is quantitative easing, do you think that there is a danger of the government’s current fiscal policy being crowded out? Why or Why not? Explanation required.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.