When the economy is in a recession, taxes decrease while spending increases and, as a result of this automatic fiscal policy, aggregate demand O induced; discretionary; is not changed O induced; needs-tested; increases O discretionary; induced; is not changed O discretionary; needs-tested; increases O needs-tested; induced; decreases

When the economy is in a recession, taxes decrease while spending increases and, as a result of this automatic fiscal policy, aggregate demand O induced; discretionary; is not changed O induced; needs-tested; increases O discretionary; induced; is not changed O discretionary; needs-tested; increases O needs-tested; induced; decreases

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter30: Government Budgets And Fiscal Policy

Section: Chapter Questions

Problem 38CTQ: Why is spending by the U.S. government on scientific research at NASA fiscal policy while spending...

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Similar questions

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?
Under what general macroeconomic circumstances might a government use expansionary fiscal policy? When might it use contractionary fiscal policy?
What is the main advantage of automatic stabilizers over discretionary fiscal policy?
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.
16. If consumers in a country spend 4/5 of their disposable income. If their governmentdecreases its spending by 55 trillion and in order to maintain a balanced budgetsimultaneously decreases taxes by 55 trillion. Calculate the effect of the 55 trillion change ingovernment spending and 55 trillion change in taxes on the country’s aggregate demand.
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) Define what are expansionary and contractionary discretionary fiscal policies. b) Define what is automatic stabiliser in fiscal policy and provide 2 examples. c) Consider an economy that is operating below the full-employment level of GDP, what would be the effect of an increase in government spending on agreegated demand and real GDP.
Suppose the government implements fiscal consolidation by cutting spending while the nominal interest rate is already at zero or near zero percent. Given πeequals to π ̅ , fiscal consolidation will likely lead to: a. Increasing inflation, decreasing real interest rate and a recession b. Increasing inflation and real interest rates, and a recession c. Deflation spiral, decreasing real interest rate and a recession d. Deflation spiral, increasing real interest rate and a recession e. All of the answers here are incorrect
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…
The government's budget surplus in Macroland has risen consistently over the past five years. Two government policy makers disagree as to why this has happened. One argues that a rising budget surplus indicates a growing economy; the other argues that it shows that the government is using contractionary fiscal policy. Can you determine which policy maker is correct? If not, why not?
1.Explain the concept of Automatic stabilizer, using the tax system as an example.2.Gomad is a small economy operating with output that is $40 million below its natural level. Assume there is no crowding-out effect and the price level is completely fixed in the short run, how much government spending does the fiscal policymakers need to change to close this recessionary gap if MPC is 0.8?3.Consider an economy described by the following equation:Y=C+Ig+G C=300+0.75(Y−T) Ig=700−12r G=250T=200where Y is the real GDP, C is the total consumption, Ig is the gross investment, G is thegovernment purchases, T is income taxes, and r is the real interest rate. Suppose r is real interest rate(in percent) = 10% 3.1 If income is equal to zero, what would be the level of consumption in this economy?
Asap both 1.a) Which of the following statements is correct?l.Expansionary fiscal policy is used to remove a recessionary gap.ll. Expansionary fiscal policy is used to shift AD right.A) l onlyB) I onlyC)both I and ID) neither I nor ll 1.b) Which of the following are examples of contractionary fiscal policy?A) decreasing government expendituresB) increasing taxesC) increasing transfer paymentsD) A and B are both contractionary fiscal policiesE) A, B, and C are all contractionary fiscal policies