Sub-part
A
The impact of decrease in the government purchase on GDP.
Concept Introduction:
Fiscal Policy: Fiscal policy is the policy by which government regulates the nation’s economy by adjusting the government spending and controlling the tax rates. It tries to influence the demand side of the economy.
Sub-part
A
Explanation of Solution
Fiscal Policy: Fiscal policy is the policy by which government regulates the nation’s economy by adjusting the government spending and controlling the tax rates. It tries to influence the demand side of the economy.
A decrease in government purchases Decreases in government purchases will reduce the aggregate demand of the economy, thus controlling the inflation rate, but will have the reverse effect on GDP.
Sub-part
B
The impact of an increase in the net taxes on GDP.
Concept Introduction:
Fiscal Policy: Fiscal policy is the policy by which government regulates the nation’s economy by adjusting the government spending and controlling the tax rates. It tries to influence the demand side of the economy.
Sub-part
B
Explanation of Solution
Fiscal Policy: Fiscal policy is the policy by which government regulates the nation’s economy by adjusting the government spending and controlling the tax rates. It tries to influence the demand side of the economy.
An increase in net taxes Increases in net taxes will reduce the disposable income of the people. This will reduce the aggregate demand as such reduce consumer spending, and thus have a negative impact on GDP.
Sub-part
C
The impact of reduction in transfer payments on GDP.
Concept Introduction:
Fiscal Policy: Fiscal policy is the policy by which government regulates the nation’s economy by adjusting the government spending and controlling the tax rates. It tries to influence the demand side of the economy.
Sub-part
C
Explanation of Solution
Fiscal Policy: Fiscal policy is the policy by which government regulates the nation’s economy by adjusting the government spending and controlling the tax rates. It tries to influence the demand side of the economy.
A reduction in transfer payments Reduction in transfer payment will reduce consumer spending and thus will have a negative impact on GDP.
Sub-part
D
The impact of decrease in the marginal propensity to consume on GDP.
Concept Introduction:
Fiscal Policy: Fiscal policy is the policy by which government regulates the nation’s economy by adjusting the government spending and controlling the tax rates. It tries to influence the demand side of the economy.
Sub-part
D
Explanation of Solution
Fiscal Policy: Fiscal policy is the policy by which government regulates the nation’s economy by adjusting the government spending and controlling the tax rates. It tries to influence the demand side of the economy.
A decrease in the marginal propensity to consumer A decrease in marginal propensity to consume implies an increase in the rate of savings and decrease in the rate of consumer spending. This implies the rate of consumption will reduce. This will decrease GDP.
Want to see more full solutions like this?
Chapter 11 Solutions
MindTap Economics, 1 Term (6 Months) Printed Access Card for Mceachern's ECON MACRO, 6th
- Why will a temporary tax increase be insignificant in reducing consumption expenditures by the amount expectedarrow_forwardWhich of the following is considered contractionary fiscal policy? A) Congress decreases the income tax rate. B) Congress decreases defense spending. C) Legislation removes a college tuition deduction from federal income taxes. D) The New Jersey legislature cuts highway spending to balance its budget.arrow_forwardWhich of the following is a category of fiscal policy?A) government policies regarding transfer payments and welfare benefitsB) government policies regarding the purchase of goods and servicesC) government policies regarding taxationD) all of the above Planned aggregate expenditure increases when ________ in the income-expenditure model.A) the government sector is excludedB) consumption is excludedC) the government sector is includedD) investment is excluded If output is greater than planned aggregate expenditure, there will beA) no change in inventories.B) a planned increase in inventories.C) an unplanned decrease in inventories.D) an unplanned increase in inventories. . During a recession, unemployment ________, tax revenue ________, and the budget deficit ________.A) rises; rises; fallsB) falls; falls; risesC) rises; falls; risesD) falls; rises; risesarrow_forward
- Suppose actual real GDP is $13.19 trillion, potential real GDP is $12.96 trillion, the marginal propensity to consume is 0.75, and that the government has a balanced budget. If we ignore price effects, by how many trillions of dollars should the government change its spending to fix the gap while keeping the federal budget balanced? (Round this to two digits after the decimal and enter this value as either a positive value or a negative value without the dollar sign.)arrow_forwardExplain how the conduct of fiscal policy affects consumption and investment in equilibrium.arrow_forwardAssume there is a decrease in the aggregate demand, if expansionary fiscal policy is being used, the following action could be taken a. increase consumption by raising disposable income through cuts in personal taxes or payroll taxes b. increasing government spending by raising after-tax profits through cuts in business taxes c. increase government purchases through increased Federal Government spending on final goods and services and raising grants to state and local government to increase their expenditures on final goods and services d. All of the abovearrow_forward
- Fiscal policy of increasing government expenditures can be more potent than monetary policy in getting us out of a recession because there is no lagged effect of fiscal policy on GDP Monetary policy produces too much uncertainty Monetary policy takes a lot of time to implement Fiscal policy has a larger multiplier effectarrow_forwardAssume the Philippines government adopted fiscal policy measures to reduce the severety of typhoon Haiyan on the economy. Answer the questions below. Did typhoon Haiyan cause economic expansion or a recession? Explain your answer using at least two economic effects on the Philippines economy. Examine the effects of government expenditure as a fiscal policy measure on the Philippines economy.arrow_forwardHow do the instances when expansionary fiscal policy should be used compare with those for contractionary fiscal policy? Expansionary fiscal policy should be used during recessions to help build the economy and contractionary fiscal policy should be used when there is high inflation. Expansionary fiscal policy should be used to increase government revenue and contractionary fiscal policy should be used to increase consumer spending. Expansionary fiscal policy should be used to combat high inflation and contractionary fiscal policy should be used to increase government revenue. Expansionary fiscal policy should be used to decrease the unemployment rate and contractionary fiscal policy should be used when economic growth is too fast.arrow_forward
- Suppose the economy begins at full employment. Label this starting point as point "1." Then, suppose that a long strike by coal miners reduces the coal supply and increases the price of coal. Show the effects on your graph and label the new equilibrium point "2." Lastly, suppose our government wants the economy to return to full-employment as quickly as possible. Should the government intervene? If so, show the impact of successful fiscal policy on your graph. Label this new equilibrium point "3."arrow_forwardWhich of the following is an expansionary fiscal policy? increase in taxes only both increase in taxes and increase in government spending decrease in government spending decrease in taxesarrow_forwardWhat is the eventual effect on real GDP if the government increases its purchases of goods and services by $75,000? Assume the marginal propensity to consume (MPC) is 0.75. $ What is the eventual effect on real GDP if the government, instead of changing its spending, increases transfers by $75,000? Assume the MPC has not changed. $ An increase in government transfers or taxes, as opposed to an increase in government purchases of goods and services, will result in an identical eventual effect on real GDP. no change to real GDP. a larger eventual effect on real GDP. a smaller eventual effect on real GDP.arrow_forward
Survey of Economics (MindTap Course List)EconomicsISBN:9781305260948Author:Irvin B. TuckerPublisher:Cengage Learning
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning