Whether the following statement is true, false or uncertain? And Why is this so? Use graphs if needed. 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

Whether the following statement is true, false or uncertain? And Why is this so? Use graphs if needed. 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

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter19: The Keynesian Model In Action

Section: Chapter Questions

Problem 8SQP

See similar textbooks

Similar questions

Is the following true, false or uncertain? 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. Use graphs if possible.
Identify 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.
Identify how planned investment will change in each scenario. In an effort to reduce constant budget deficits, Congress announces plans to increase the corporate income tax rate. Due to the Congress, planned investment will increase, decrease, or stay the same? A major recession has reduced consumption spending, which has hurt profit levels for Aston-Benz, a high-end car manufacturer. Due to the recession, planned investment will increase, decrease, or stay the same?
Supply-siders argue that: a. reductions in government spending cut infrastructure investment which hurts private sector investment. b. increases in government spending increase infrastructure investment which helps private sector investment. c. increases in government spending causes private sector investment to fall because the government pushes up interest rates. d. reductions in government spending cause private sector investment to fall because the government pushes up interest rates by borrowing. e. increases in government spending causes consumption spending to fall because the government purchases push up interest rates.
. In the long-run framework, budget surpluses: Select correct and explain why its correct should be run whenever output dips below potential output. should never be run since they crowd out investment in the short run. are better than budget deficits over the long run because unlike budget deficits, they increase saving and investment. should be run on a permanent basis since they boost saving and investment and stimulate economic growth.
Suppose in our two-period model of the economy that the government, instead of borrowing in the current period, runs a government loan program. That is, loans are made to consumers at the market real interest rate r, with the aggregate quantity of loans made in the current period denoted by L. Government loans are financed by lump-sum taxes on consumers in the current period, and we assume that government spending is zero in the current and future periods. In the future period, when the government loans are repaid by consumers, the government rebates this amount as lump-sum transfers (negative taxes) to consumers. We use the same notation as in the lecture notes (y, y′ , c, c′ ,t, t′ , s, T, T′ ). Also, we use l ≡ L/n to represent the size of the loan that each individual consumer takes from the loan program, where n is the population. 1) Write down the government’s current-period budget constraint and its future-period budget constraint. 2) Determine the present-value budget…
Refer to the above diagram. The economy is at equilibrium at point C. What fiscal policy would increase real GDP? Group of answer choices Increase aggregate demand from AD2 to AD1 by decreasing taxes. Decrease aggregate demand from AD2 to AD3 by increasing taxes. Increase aggregate demand from AD1 to AD2 by increasing government spending. Make no change because the economy is at or near its full-employment level of real output.
Please answer all the three An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift up, the equilibrium level of aggregate output to__________ and the IS curve to shift to the__________ everything else held constant. A) fall; right B) rise; left C) fall; left D) rise: right Which of the following statements concerning IS-MP analysis is true? A) Changes in net exports arising from a change in interest rates causes a shift in the IS curve. B) Expansionary fiscal policy will cause the interest rate to fall. C) A fall in the money supply shifts the LM curve to the right. D) For a given change in taxes, the IS curve will shift less than for an equal change in government spending. LVTS participants with positive settlement balances at the end of the day.________ A) are paid the overnight rate B) are paid the bank rate less 50 basis points C) are paid the prime rate D) are paid the bank rate
In the long-run framework, budget surpluses: Choose the Correct and Explain why its correct should be run whenever output dips below potential output. should never be run since they crowd out investment in the short run. are better than budget deficits over the long run because unlike budget deficits, they increase saving and investment. should be run on a permanent basis since they boost saving and investment and stimulate economic growth.
Consider a scenario of a closed economy in the short run where price level is fixed. Assume that both taxes and money supply increase in a way that keep output constant in equilibrium (suppose that the marginal propensity to consume is less than one). Which of the following may result from the policy change? a) It will lead to an increase in investment but a decrease in consumption.b) It will result in an increase in investment but a decrease in government spending.c) It will lead to an increase in investment and private saving.d) It will decrease investment but increase in public saving.
There is an increase in government expenditures financed by taxes and its overall short-run effect on output is larger than the change in government spending. Which of the following is correct? A) By themselves, both the change in the output and the change in the interest rate decrease desired investment. B) By themselves, both the change in output and the change in the interest rate increase desired investment. C) By itself, the change in the output decreases desired investment spending and by itself the change in the interest rate increases desired investment spending. D) BY itself, the change in output increases desired investment spending and by itself the change in the interest rate decreases desired investment spending.
In each of the following cases, either a recessionary or inflationary gap exists. Assume that the aggregate supply curve is horizontal, so that the change in real GDP arising from a shift of the aggregate demand curve equals the size of the shift of the curve. Calculate both the change in government purchases of goods and services and the change in government transfers necessary to close the gap. a. Real GDP equals $100 billion, potential output equals $160 billion, and the marginal propensity to consume is 0.75. b. Real GDP equals $250 billion, potential output equals $200 billion, and the marginal propensity to consume is 0.5. c. Real GDP equals $180 billion, potential output equals $100 billion, and the marginal propensity to consume is 0.8. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.