MACROECONOMICS >C< W/MYECONLAB
18th Edition
ISBN: 9781323886038
Author: Pearson
Publisher: Pearson Custom Publishing
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Chapter 17, Problem 3.3P
To determine
Disagreements on relative merits of supply side economics.
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Average Tax Rate
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Refer to the table. If the current tax rate is 60 percent, supply-side economists would advocate
Multiple Choice
lowering tax rates to 20 percent, or lower if possible.
lowering tax rates to 40 percent.
keeping tax rates at 60 percent.
raising tax rates to 80 percent.
Most 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.
What is supply-side economics? Does it oppose the Classical, Keynesian, or Monetarist theory? How does supply-side economics affect fiscal policy?
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- How can the theory of duality help policymakers regarding supply-side economics? Discuss.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_forwardIn the most recent FOMC meeting, the Federal Reserve increased the Federal Funds rate. By doing this, this suggests the Federal Reserve: a is willing to sacrifice jobs to keep prices stable b is willing to sacrifice higher prices to save jobs c believes the Federal Funds rate is not important d is trying to counter fiscal policy actionsarrow_forward
- TRUE/FALSE According to our discussion of supply side economics, there are positive aggregate demand side effects and positive supply side effects, similar to what happened during the new economy.arrow_forwardMatch the left side to answers on the right side. Use each answer on the right side only once. There are more available answers on the right side so there will be some leftover. Group of answer choices: a. fiscal policy is used by: b. monetary policy is used by: c. expansionary fiscal policy involves: d. expansionary monetary policy involves: e. contractionary fiscal policy involves: f. contractionary monetary policy involves: Match a-f with these: (attached picture)arrow_forwardMost economists have reached the following conclusion about supply-side economics. a. Supply-side tax cuts are likely to reduce income inequality. b. Supply-side tax cuts are almost certain to lead to smaller budget deficits. c. Supply-side tax cuts are likely to widen income inequality. d. None of these.arrow_forward
- One supply-side measure introduced by the Reagan administration was a cut in income tax rates. Use an aggregate demand/aggregate supply diagram to show what effect was intended. What might happen if such a tax cut also shifted the aggregate demand curve.arrow_forwardsupply-side economists believe that a reduction in the tax rate a. always decrease government tax revenue b. shifts the aggregate supply curve to the right c. would decrease consumption d. provides no incentive for people to work more d. provides no incentive for people to work morearrow_forwardWhich of the following statements is false? It might sometimes make sense for a government to combine an expansionary monetary policy with an expansionary fiscal policy. If spending is very responsive to changes in interest rates, and the demand for money is interest inelastic, then monetary policy tends to be more powerful than fiscal policy. It would never make sense for a government to combine an expansionary monetary policy with a contractionary fiscal policy. If spending is not very responsive to changes in interest rates, and the demand for money is interest elastic, then fiscal policy tends to be more powerful than monetary policyarrow_forward
- The Australian government is concerned about the growing budget deficit, so they decide to cut government expenditures by $15 billion. They also decide the economy needs a boost so they decide to cut income taxes by $40 billion. Would this simply mean a net increase in aggregate demand of $25 billion? Why or why not?arrow_forwardWhen there is a problem of a delay in terms of implementation of the fiscal policy, that would be categorized as _____. execution lag information lag decision lag Fiscal policy nowadays are focused on eliminating GDP gap True False When the Central Bank controls the money supply by controlling the amount of high-powered money in the economy, that is called _____. interest rate fixation selective credit control open market operations required reserves ratio policy The focus of monetary policy nowadays is by using interest rate as an indicator. True Falsearrow_forwardDiscuss the fiscal policy measures adopted by the government in the last two years. Evaluate the expected effects of these measures on aggregate demand and supply, as well as their impact on the major macroeconomic goals of steady GDP growth, price stability, and full employment. Determine whether these measures are expansionary or contractionary and consider their implications for the budget deficit and national debt. Explain the most recent monetary policy move by the Federal Reserve (the FED). Determine whether this policy is expansionary or contractionary and elaborate on the reasons behind the Fed's decision. Analyze the observed impacts of this policy. For best results and up-to-date information, refer to recent announcements made by the Federal Open Market Committee (FOMC).arrow_forward
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