Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
7th Edition
ISBN: 9780134472669
Author: Blanchard
Publisher: PEARSON
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Chapter 3, Problem 11QAP
a)
To determine
To ascertain:Effect on output level when deficit is reduced.
b)
To determine
To find:Impact on output when G is cut by $100 billion or T increases by $100 billion.
c)
To determine
To know:Impact on mpc due to answer in part (b)
d)
To determine
To check:Validity of argument.
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Is the following true, false or uncertain?
Assume that workers supply effort based on their expected real consumption wage and consume a basket with a non-negligible component of imported goods and services. The government in an open economy implements a contractionary fiscal policy (from an initial medium-run equilibrium) motivated, for example, by its desire to reduce national debt. This leads to lower real wages and higher unemployment in equilibrium. Hint: you may want to compare this with the case in which the initial two assumptions do not hold. Use graphs if possible.
The Focus box “Can a Budget Deficit Reduction Lead to an Output Expansion? Ireland in the 1980s” provides an example of fiscal consolidation. Ireland had a large budget deficit in 1981 and 1982.
What does a deficit reduction imply for the medium run and the long run? What are the advantages of reducing the deficit?
Refer to the above diagram. The economy is at equilibrium at point C. What fiscal policy would increase real GDP?
Group of answer choices
Increase aggregate demand from AD2 to AD1 by decreasing taxes.
Decrease aggregate demand from AD2 to AD3 by increasing taxes.
Increase aggregate demand from AD1 to AD2 by increasing government spending.
Make no change because the economy is at or near its full-employment level of real output.
Chapter 3 Solutions
Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
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