Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Chapter 19, Problem 11PA
To determine
The impact of an investment tax credit.
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In the United States, the various state governments almost all have laws that require them to balance their budgets, every single year.
Such a law would require them to ___during a ____ , resulting in a ____ recession.
recession ,boom ,bigger, smaller, decrease taxes, increase taxes
Fiscal policy
During an economic _______, there is a decline in economic activity, including falling GDP, rising unemployment, and reduced consumer spending. To combat this, governments often implement _______ fiscal policies to stimulate the economy.
A) expansion, contractionaryB) downturn, expansionaryC) boom, contractionaryD) recession, expansionary.
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- Analyse the action that government can take to assist the economy during a recessionarrow_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_forwardIn 2010 the Greek government had to inform the European Commission on how it would control its budget deficit and improve the performance of its economy. The government’s debt is so high that agencies assessing the creditworthiness of the government downgraded it (which would mean more interest has to be paid to raise finance). Proposals were likely to include a 10% cut in government spending. What actions can the government take to increase national income growth in Greece? If the Greek economy is in recession what would you expect to be the effect on: a) Inflation? b) Unemployment? c) Imports? Explain your answers.arrow_forward
- You are the chair of the president’s Council of Economic Advisers. There has been an extremely hot and dry summer due to climate change. As a result, crop production has fallen drastically. The president calls you to the White House to discuss the impact on the economy. Would you explain to the president that a sharp drop in U.S. crop production would cause inflation, unemployment, or both?arrow_forwardWhy does the budget require a forecast of the economy? Under what circumstances would actual government spending and tax revenue fall to match the budget as approved?arrow_forwardFiscal policy determines the level of interest rates.True or Falsearrow_forward
- Amid an economic recession, a government decides to implement an expansionary fiscal policy. This policy includes increasing government spending on infrastructure projects and reducing taxes to stimulate demand and create jobs. While the policy aims to boost economic activity, it also risks increasing the national debt and potentially leading to higher inflation. In this scenario, the primary objective of the expansionary fiscal policy is to: A) Reduce government spending and increase taxes B) Stimulate economic activity and job creation C) Focus solely on long-term economic growth D) Increase the national debt and inflation Explain all options plsarrow_forwardAmid an economic recession, a government decides to implement an expansionary fiscal policy. This policy includes increasing government spending on infrastructure projects and reducing taxes to stimulate demand and create jobs. While the policy aims to boost economic activity, it also risks increasing the national debt and potentially leading to higher inflation. In this scenario, the primary objective of the expansionary fiscal policy is to: A) Reduce government spending and increase taxes B) Stimulate economic activity and job creation C) Focus solely on long-term economic growth D) Increase the national debt and inflationarrow_forwardC = 450 + 0.4Y I = 350 G = 150 X = 70 Z = 35 + 0.1Y T = 0.15Y Yf = 1550 Calculate the tax revenue to the government of this country when the economy remains in equilibrium. Calculate what the new equilibrium income should be if the government of this country decides to cancel all taxes, implying the tax rate would now be 0%. Before the government decreased the tax rate, how much of government spending was required to bring the economy to full employment?arrow_forward
- fiscal policy is most effective when combating recessions caused by demand shocks recessions caused by supply shocks inflation caused by supply and demand shocks inflation caused by supply shocks arrow_forwardEvaluate the effectiveness of fiscal policy as a tool to reduce unemployment.arrow_forwardConsumers increased consumption by a relatively small amount in 2008 and 2009 because they believed the tax cuts were temporary. True or Falsearrow_forward
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