EBK EXPLORING MACROECONOMICS
7th Edition
ISBN: 9780100546400
Author: Sexton
Publisher: YUZU
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Question
Chapter 16, Problem 12P
To determine
(a)
To show:
The situation of a supply-side fiscal policy which leaves the
To determine
(b)
To explain:
Thesituation when a supply-side fiscal policy can cause an increase in the price level.
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Chapter 16 Solutions
EBK EXPLORING MACROECONOMICS
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- Why do we refer to fiscal policy as "Resource Mobilization Policy"?arrow_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_forwardUnder what conditions is expansionary fiscal policy the most effective at increasing output? Why?arrow_forward
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- Explain your decision making regarding government expenditure and how it changed based on the macroeconomic conditions. What was the intent of your fiscal policy decisions in response to the given economic climate? Evaluate your fiscal policy decisions, including how they impacted key macroeconomics factors such as real GDP growth and unemployment. To what extent did your policies yield positive or negative outcomes? Refer to the AD/AS model to support your analysis in this section of your report.arrow_forwardIn mid-2001, the Bush administration won congressional approval for lower income tax rates. One stipulation of this rate cut was that the rates also be applied retroactively to taxes from the year 2000. Question: Would you consider this fiscal policy to be demand-side focused, supply-side focused, or both? Explain your response.arrow_forwardFor each of the following fiscal policy proposals, determine whether the primary focus is on aggregate demand or aggregate supply or both: i. $1,000 per person tax reduction ii. a 5% reduction in all tax rates iii. Pell Grants, which are government subsidies for college education iv. government-sponsored prizes for new scientific discoveries v. an increase in unemployment compensation (i) both; (ii) supply-side; (iii) supply-side; (iv) both; (v) demand-side (i) demand-side; (ii) both; (iii) supply-side; (iv) supply-side; (v) both (i) demand-side; (ii) both; (iii) both; (iv) supply-side; (v) demand-side (i) supply-side; (ii) demand-side; (iii) demand-side; (iv) both; (v) both (i) supply-side; (ii) supply-side; (iii) demand-side; (iv) both; (v) botharrow_forward
- The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by increasing government purchases to reduce the burden of this recession. Price Level 160 140 120 100 80 60 $ 40 20 0 Fiscal Policy LRAS AD₁ Real GDP (billions of dollars) billion AS 80 160 240 320 400 480 560 640 720 800 AD Instructions: Enter your answers as a whole number. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ billion O b. If the MPC is 0.8, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? Suppose instead that the MPC is 0.9. c. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and government purchases need to change by $ billion.arrow_forwardWhy tax cuts can increase both aggregate demand and aggregate supply?arrow_forwardIf there is an increase in government spending how can you solve the change in equilibrium Y? What's the formula?arrow_forward
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