EBK PRINCIPLES OF MACROECONOMICS
12th Edition
ISBN: 9780134079592
Author: Oster
Publisher: YUZU
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Question
Chapter 14, Problem 3.4P
To determine
Macro economic effects of the spending and tax changes, when the government tries reduce the deficit.
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What is the importance of fiscal policy during times of economic recession?
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What is the importance of fiscal policy during times of economic recession?
What is the reason why fiscal policy should be in tune with monetary policy when the economy is in the recession phase?
What is the importance of the Central Bank in the financial market?
You are advising the Bank of Canada and the Federal Government. The economy is in a state of contraction.
a) Determine the monetary policy actions that you would recommend and explain how these actions will help to turn the economy around.
b) Determine the fiscal policy measures that you would recommend and explain how these actions will help to turn the economy around.
Chapter 14 Solutions
EBK PRINCIPLES OF MACROECONOMICS
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- Explain the relationship between the effectiveness of monetary policy and the interest elasticity of money demand. Will the monetary policy be more or less effective the higher the interest elasticity of money demand? Explain. Now explain the relationship between fiscal policy and the interest elasticity of money demand. Why do the two relationships differ?arrow_forwardWhat is supply-side economics? Does it oppose the Classical, Keynesian, or Monetarist theory? How does supply-side economics affect fiscal policy?arrow_forwardMost economists agree that individual consumers and business cannot pull the economy out of a severe recession without help from either the government or the Federal Reserve. Which group(s) believe fiscal policy is ineffective: Keynesians or Monetarists? Briefly explain the answer. Which group(s) believe monetary policy is ineffective in the short run: Keynesians or Monetarists? Briefly explain the answer. Which group(s) believe monetary policy is ineffective in the long run: Keynesians or Monetarists? Briefly explain the answer.arrow_forward
- One of the main arguments against using Fiscal Policy is the crowding out effect. Suppose the government uses government purchases to stimulate the economy. Explain quantitative easing? If the Fed’s current policy is quantitative easing, do you think that there is a danger of the government’s current fiscal policy being crowded out? Why or Why not? Explanation required.arrow_forwardRead the following quote and explain in complete sentences whether it discusses fiscal policy, monetary policy or both. “Taking substantial action at this point, though, would send what could be a negative message to the market — that the balance sheet runoff, which former Chair Janet Yellen said would be ‘like watching paint dry,’ is running into snags and requires corrective action. However, the Fed would have no choice if there are indications that it can't control the market movements, particularly considering the record level of Treasury debt the government has issued this year.”arrow_forwardDiscuss some of the difficulties that may arise from enacting and carrying out fiscal policy and why some economists believe monetary policy is superior as a stabilizing mechanism.arrow_forward
- Suppose a government has a tax revenue shortfall. Will hyperinflation inevitably follow unless the government cuts its fiscal expenditures?arrow_forwardWhat is the Laffer Curve, and how does it relate to supply-side economics? Why is determining the economy’s location on the curve so important in assessing tax policy?arrow_forward
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