Why do permanent tax cuts have a greater impact on consumption than temporary tax cuts? a. Permanent tax cuts affect expectations of long-run income more than temporary tax cuts. b. Permanent tax cuts cause movement along the consumption function, while temporary tax cuts shift the consumption function. c. Permanent tax cuts have a greater effect on expected long-run inflation. d. Permanent tax cuts are perceived as minor while temporary tax cuts are larger and more effective.

Why do permanent tax cuts have a greater impact on consumption than temporary tax cuts? a. Permanent tax cuts affect expectations of long-run income more than temporary tax cuts. b. Permanent tax cuts cause movement along the consumption function, while temporary tax cuts shift the consumption function. c. Permanent tax cuts have a greater effect on expected long-run inflation. d. Permanent tax cuts are perceived as minor while temporary tax cuts are larger and more effective.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter13: Monetary Policy: Conventional And Unconventional

Section: Chapter Questions

Problem 8TY

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Consider two policies, a tax cut that lasts for only 2 years and a tax cut that is expected to be permanent. Which policy will stimulate greater spending by consumers? Which policy will have the greater impact on aggregate demand? Select one: a. permanent tax cut; 2-year tax cut b. permanent tax cut; permanent tax cut c. 2-year tax cut; 2-year tax cut d. 2-year tax cut; permanent tax cut
10.1For each of the following events,explain the short-run and long-run effects on output and price level,assuming policymakers take no action. a) The stock market declines sharply,reducing consumers' wealth. b) The federal government increases spending on national defence. 10.2 In which of the following circumstances is expansionary fiscal policy more likely to lead to a short-run increase in investment?Explain. a)When the investment accelarator is large or when it is small?
The country is experiencing a serious rise in inflation which the government wants to control through fiscal policy. The Government will decrease spending by $20 million and increase taxes by $15 million. The marginal propensity to consume (MPC) is 0.80. What will be the effect on GDP and by how much? A recessionary gap is how much GDP needs to increase from the current GDP to achieve full employment. Let's say that we are experiencing a recessionary gap of $36 million. Also assume that the MPC equals .80. The government decides to decrease taxes to close the recessionary gap. How much will be the tax decrease? An inflationary gap is how much GDP needs to decrease from the current GDP to maintain employment while avoiding inflation. Let's say that we are experiencing an inflationary gap of $200 million. The government decides to increase taxes. Assume the MPC equals .80. How much will the tax increase be? The government wants to achieve a balanced budget. It therefore increases…
An economy is operating with output that is $40 billion below its natural level, and fiscal policymakers want to close this recessionary gap. The central bank agrees to adjust the money supply to hold the interest rate constant, so there is no crowding out. The marginal propensity to consume is 4/5, and the price level is completely fixed in the short run. In what direction and by how much would government spending need to change to close the recessionary gap? Explain your thinking Please give me answer in daetail please
(a) In order to get out of recession, the government chooses to reduce taxes (T) by 250. Find the new equilibrium level of income and interest rates. (b) If instead (i.e. government taxes are back to the original level of 1000), it chooses to increase the money supply (M) by 250. Find the new equilibrium level of income and interest rates.
Which of the following statements about Fiscal Policy is INCORRECT (a) In order to combat inflation, the South African Reserve Bank must apply a contractionary 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 the AD‐AS model. If the inflation rate is 6% and Susan receives a 6% increase in income, then, over the year, Susan’s: (a) Real and nominal income both remain unchanged; (b) Real and nominal income both rise; (c) Real income rises but nominal income remains unchanged; (d) Nominal income rises but real income remains unchanged. Given the import function, Z = 300 + 2/3Y, which of the following statements is correct? The marginal propensity to save is 1/3; The induced component is 300; 2/3 is the proportion of any income spent on imports; None of…
The country is experiencing a serious rise in inflation which the government wants to control through fiscal policy. The Government will decrease spending by $20 million and increase taxes by $15 million. The marginal propensity to consume (MPC) is 0.80. What will be the effect on GDP and by how much? A recessionary gap is how much GDP needs to increase from the current GDP to achieve full employment. Let us say that we are experiencing a recessionary gap of $36 million. Also assume that the MPC equals .80. The government decides to decrease taxes in order to close the recessionary gap. What will be the tax decrease? An inflationary gap is how much GDP needs to decrease from the current GDP to maintain employment while avoiding inflation. Let us say that we are experiencing an inflationary gap of $200 million. The government decides to increase taxes. Assume that the MPC equals .80. What will be the tax increase? d. The government wants to achieve a balanced budget. It, therefore,…
Which of the following methods would best describe a deflationary fiscal policy? Select one: a) Taxes decrease Public spending increases b) Taxes increases Public spending decreases c) Taxes decrease Public spending constant d) Taxes decrease Public sending decreases e) Taxes incraese Public spending increases
Q-1 The following table shows income and consumption: Calculate: A- Saving (S), B- Marginal propensity to consume (MPC), C-Marginal propensity to save (MPS), D- Average propensity to consume (APC) E- Average propensity to save (APS). Q-2 Compute the (a) Number of unemployed, (b) Unemployment-rate, (c) Population, and (d) Labor force participation rate, using this data: Number of employed = 1800 million Not in labour force =730 million Number of Labour force =2500 million Q-3 Discuss how to control or reduce the Inflation and Unemployment.
Describe the economy's output gap. The economy has A. an inflationary gap of $500 billion B. neither a recessionary gap nor an inflationary gap C. a recessionary gap of $50 billion D. an inflationary gap of $50 billion
Assuming the economy is in long run and the govt implemnents a tax cut of $420 Billion, there is no crowding out, and marginal propensity to consume is 0.9 what's the initial and total effect of the tax reduction on aggregate demand? Is there a formula to calculate this?

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	a.	Permanent tax cuts affect expectations of long-run income more than temporary tax cuts.
	b.	Permanent tax cuts cause movement along the consumption function, while temporary tax cuts shift the consumption function.
	c.	Permanent tax cuts have a greater effect on expected long-run inflation.
	d.	Permanent tax cuts are perceived as minor while temporary tax cuts are larger and more effective.