Economics For Today
10th Edition
ISBN: 9781337613040
Author: Tucker
Publisher: Cengage Learning
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Question
Chapter 18, Problem 3SQ
To determine
The Keynesian recommendation for less than full employment equilibrium.
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Students have asked these similar questions
If a recession persists due to nominal wage and price stickiness (i.e., slow adjustment of nominal wages downward), what kind of fiscal policy can bring us out of this recession?
decreased government expenditures and increased taxes
increased government expenditures and decreased taxes
decreased government expenditures
contractionary fiscal policy
Our macroeconomic model suggests that after a decline in aggregate demand like that of 2007, the economy will self correct and return to a position where the GDP gap is zero. If this is correct, why should the government ever intervene with fiscal policy?
a.
It take many years for the GDP gap to close on its own.
b.
This is part of the government's "mission statement" as given in the Constitution.
c.
Fiscal policy is profitable for banks.
d.
People do not trust the theory behind the model.
Q) In case of DEFLATION, mention that which particular type of fiscal policy will be used and why and either each fiscal policy tool will be increased or decreased. Explanation and reasoning for each tool and its working separately is must.
Chapter 18 Solutions
Economics For Today
Ch. 18.4 - Prob. 1YTECh. 18 - Prob. 1SQPCh. 18 - Prob. 2SQPCh. 18 - Prob. 3SQPCh. 18 - Prob. 4SQPCh. 18 - Prob. 5SQPCh. 18 - Prob. 6SQPCh. 18 - Prob. 7SQPCh. 18 - Prob. 8SQPCh. 18 - Prob. 9SQP
Ch. 18 - Prob. 1SQCh. 18 - Prob. 2SQCh. 18 - Prob. 3SQCh. 18 - Prob. 4SQCh. 18 - Prob. 5SQCh. 18 - Prob. 6SQCh. 18 - Prob. 7SQCh. 18 - Prob. 8SQCh. 18 - Prob. 9SQCh. 18 - Prob. 10SQCh. 18 - Prob. 11SQCh. 18 - Prob. 12SQCh. 18 - Prob. 13SQCh. 18 - Prob. 14SQCh. 18 - Prob. 15SQCh. 18 - Prob. 16SQCh. 18 - Prob. 17SQCh. 18 - Prob. 18SQCh. 18 - Prob. 19SQCh. 18 - Prob. 20SQ
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- The economy is experiencing rapid inflation, pushing above 9%. Which fiscal policy action should the government implement in an attempt to fix this problem? A.) decrease interest rates B.) raise taxes C.) increase spending D.) increase reserve requirementsarrow_forward20. . If US economy moves into an expansion while producing more than potential GDP, then: a) government spending and tax revenue will increase because of automatic stabilizers. b) government spending and tax revenue will decrease because of automatic stabilizers. c) automatic stabilizers will increase government spending and decrease tax revenue. d) automatic stabilizers will decrease government spending and increase tax revenue.arrow_forwarda. You are studying an economy with an income tax rate, t1, of 32% and an MPS of 0.3. It is currently suffering from a “recessionary gap” of $500 m. (i.e., Eqm Y<Y full employment, FE, aka Yn). Make the necessary calculations for the to policy that it should institute; who does what? Provide the full name of this policy. Compare this economy to one without income taxes to explain the term “automatic stabilizer.” [Hint: Let I change and compare the I multipliers in each of these economies.]arrow_forward
- If the economy is in a recessionary period how, specifically, might the government use their three tools? three tools change the tax rate change the level of govertment spending change transfer paymentsarrow_forwardQ) Which statement below is true of ONLY fiscal policy? Uses government expenditures to create demand Increases the availability of money Used to alter AD A policy typically set by a banking authority Explain it early and correctly.choose correct option but not copy paste anythingarrow_forwardCountry D experiences a recession due to a decrease in consumer confidence. There are two economists, Andrew and Betty. Betty suggests the government to do nothing. Andrew suggests the government to implement fiscal policies to revive the economy as soon as possible. If the government adopts Betty’s policy, draw an AD-AS graph to show what happens to the economy in short run and then long run after the decrease in consumer confidence. Suppose the government adopts Andrew’s policy. (i) Will the government increase or decrease spending? (ii) The government cuts the income tax rate. After cutting the income tax rate, the total income tax revenue collected increases. Explain why. (iii) Will Andrew’s policy be more effective if MPC is smaller? Give one advantage of Betty’s policy over Andrew’s policy.arrow_forward
- Which of the following statements about Fiscal Policy is INCORRECT? choose the correct answer(a) In order to combat inflation, the South African Reserve Bank must apply acontractionary 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 theAD‐AS modelarrow_forwardconsider each fiscal policy listed here, which policies would shift the aggregate demand curve in the way that restores full employment output at the lowest possible price level check all that apply. Cut taxes by 60 billion. Decrease taxes by 80 billion and decrease government expenditures by 20 billion Increase government expenditures by 50 billion and raise taxes five40 billio Increase government expenditures by 60 billion and raise taxes by 60 Reduce government expenditures by 30 billionarrow_forwardFiscal policy consists of the executive branch's decisions to tax and spend. If the economy is in an expansionary mode just coming out of a recession, in regards to aggregate demand and aggregate supply, we can assume that a tax hike will lead to a. aggregate supply to shift inward. b. the economy expanding even more as a result. c. aggregate demand to shift inward. d. no changes will occur. e. aggregate demand and supply to shift inward.arrow_forward
- If Canada's economy moves into an expansionary phase of the business cycle, then: Group of answer choices A. government spending and tax revenue will increase because of automatic stabilizers. B.government spending and tax revenue will decrease because of automatic stabilizers. C.automatic stabilizers will decrease government spending and increase tax revenue. D.automatic stabilizers will increase government spending and decrease tax revenue.arrow_forwardSomeone answer this question asapA major side-effect of a stimulating fiscal policy is that it will A. increase the natural rate of unemployment. B. discriminate in favor of housing. C. crowd out private expenditures. D. permanently raise the rate of inflation.arrow_forwardOne criticism of the fiscal policy ineffectiveness is because: A.the velocity of money is predictable. B.it is dependent on Congress' approval. C.the crowding-out effect increases investment. D.prices and wages are sticky in the short run.arrow_forward
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