Answered: Using the AD (Aggregate Demand) and AS…

Using the AD (Aggregate Demand) and AS (Aggregate Supply) curves, explain the effectiveness of the government's economic policies (fiscal and monetary) in the long and short term.

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 5.13P

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1. Using the AD (Aggregate Demand) and AS (Aggregate Supply)
curves, explain the effectiveness of the government's economic
policies (fiscal and monetary) in the long and short term.

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4. Fiscal policy affects aggregate demand because: government spending is a category of aggregate demand. taxes affect corporate spending and so investment. taxes affect disposable income and so consumption. all of the above.
1. Which of the following is NOT a category of fiscal policy? Group of answer choices government policies regarding taxation government policies regarding money supply in the economy government policies regarding transfer payments and welfare benefits government policies regarding the purchase of goods and services 2. Disposable income Group of answer choices increases when net taxes increase. increases when saving decreases. decreases when saving increases. increases when income increases.
#3. Fiscal policy can affect the rental cost of capital. true or false.?
1. Give three examples of governments that are adept in the use of fiscal policy. 2. Give three examples of governments whose use of fiscal policy leaves a lot to be desired? Explain your thinking. 3. What is potential GDP? What role does it play in fiscal and monetary policies?
8. “The more progressive a tax system, the greater is the economy’s built-in stability.” Explain this statement for both recessionary and peak phases of the business cycle.
4. Which of the following statements are FALSE? (a) When the government prints money to buy goods and services the resulting inflation is a form of tax, since people will not have to pay more for their goods and services than before. (b) An effective fiscal policy macroeconomic stimulus should aim to replace private spending with public (government) spending. (c) To be effective a fiscal policy macroeconomic stimulus should have temporary increases in spending and permanent tax cuts. (d) The paradox of thrift is that the increase in saving during a recession because people postpone major purposes prolongs the recession and thus is not good for the economy, while normally saving grows the economy.
6. (Fiscal Policy) Was fiscal policy effective when the U.S. economy was experiencing stagflation during the 1970s? Why or why not?
An appropriate fiscal policy response to a recession would be to decrease which of these? Question 9 options: A.) the money supply B.) nominal interest rates C.) government spending D.) the personal income tax rate
QUESTION 7 07. What factors make an expansionary "stimulus" fiscal policy effective? a) A government budget deficit associated with fiscal stimulus should should borrow money from those who spend less and save more, to those who spend more and save less. b) A permanent decrease in taxes is more effective in stimulating spending than a temporary one c) An increase in government purchases of goods and services should be temporary and should not permanently displace private spending d) The most expansionary way of financing the budget deficit associated with a fiscal stimulus policy is by the central bank expanding the quantity of money in circulation. e) Infrastructure investment belongs with long-term growth policy, but invariably makes a poor element in stimulus policy because such investment normally take a long time to implement. f) All the above.
4. When an economy is already at full employment, what is the outcome of expansionary fiscal policies to employment, inflation, real output, and deficits (assuming no changes in tax rates)?
2. Which of the following is not a category of fiscal policy? government policies regarding the purchase of goods and services government policies regarding taxation government policies regarding money supply in the economy government policies regarding transfer payments and welfare benefits
20. . If US economy moves into an expansion while producing more than potential GDP, then: a) government spending and tax revenue will increase because of automatic stabilizers. b) government spending and tax revenue will decrease because of automatic stabilizers. c) automatic stabilizers will increase government spending and decrease tax revenue. d) automatic stabilizers will decrease government spending and increase tax revenue.