ECONOMICS:PRIN.+POLICY-MINDTAP (1 TERM)
14th Edition
ISBN: 9781337912396
Author: Baumol
Publisher: CENGAGE L
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Question
Chapter 27, Problem 4TY
To determine
The possible action to reduce income by $120 when an inflationary gap exists.
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Students have asked these similar questions
Respond to all parts of the question. In your response, use substantive examples where appropriate.
Use the pie charts to answer the following questions.
Identify the percentage of the budget that was mandatory spending in 1968.
Describe a change over time in the pie charts.
Government is considering a policy change to stimulate the economy by encouraging private consumption by reducing
sales taxes. The loss of tax revenue will be made up by increasing taxes on corporate profits and excess savings. What are
the short- and long-term effects of such a change?
Suppose there is a deflationary gap in the economy and the government plans to introduce expansionary fiscal policy
to move expenditure closer to full employment level of output. They will increase spending on infrastructure projects
such as roads, ports, bridges, dams etc. At the same time households and firms have become pessimistic about the
future and cut back spending to save more for difficult days ahead.
Answer the questions below based on the government's planned policy and consumers' and firms' pessimism.
What happens to the Marginal Propensity to Consume in the economy ?
Choose.
What happens to the Spending Multiplier?
Choose.
Would the effect of expansionary fiscal policy on total demand be more effective or less
More effective
effective?
Decreases
Increase
Less effective
Chapter 27 Solutions
ECONOMICS:PRIN.+POLICY-MINDTAP (1 TERM)
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