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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Question
Chapter 3, Problem 5QAP
a.
To determine
To solve:
Equilibrium output.
b.
To determine
The multiplier and the extent to which the economy responds to the changes in autonomous spending, when ‘t1’ is 0 and when it is positive.
c.
To determine
The reason the fiscal policy is called as an economic stabilizer.
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Students have asked these similar questions
Which of the following best describes the built-in stabilizers as they function in the United States?
1)
The size of the balanced-budget multiplier varies inversely with the level of GDP.
2)
Personal and corporate income tax collections automatically fall and transfers and subsidies automatically rise as GDP rises.
3)
Personal and corporate income tax collections and transfers and subsidies all automatically vary inversely with the level of GDP.
4)
Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.
Which of the following statements are TRUE?
a) Automatic stabilizers, such a a progressive income tax and a full-fledged Negative Income Tax income assistance program would be much more successful at stabilizing the economy than our current discretionary policiy approach .
b) To be effective, an expansionary fiscal stimulus policy should be comprised of permanent tax cuts or income assistance, but temporary increases in other government expenditures.
c) The objective of an expansionary fiscal stimulus policy is to reduce short-term saving but not long-term saving, and if the policy includes government spending on goods and services the goal is to augment private spending not supplant it.
d) How a government budget deficit accompanying expansionary fiscal stimulus is financed matters. Most effective is for central bank to finance the deficit (printing money), the worst is taxes.
e) All the above
Refer to the above graph. Assume that the economy is in a recession with a price level of P2 and output level Q4. The government then adopts an expansionary fiscal policy to shift the aggregate demand curve. What will be the most likely new equilibrium price level and output?
Group of answer choices
P2 and Q4
P1 and Q1
P2 and Q2
P1 and Q3
Chapter 3 Solutions
Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
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Similar questions
- Consider the following economy populated by a government and a representative household. There is no uncertainty and the economy and the representative household and government within it last forever. The government consumes a constant amount gt = g > 0, t ≥ 0. The government also sets sequences of two types of taxes, {τct, τkt}∞t=0 . Here τct, τkt are, respectively, a possibly time-varying flat rate tax on consumption and a time varying flat rate tax on earnings from capital. The preferences of the household are ordered by Where β ∈ (0, 1) and u(·) is strictly concave, increasing and twice continuously differentiable. The feasibility condition in the economy is Where kt is the stock of capital owned by the household at the beginning of time t and δ ∈ (0, 1) is a depreciation rate. At time 0, there are complete markets for dated commodities. The household faces the budget constraint: Where we assume that the household…arrow_forwardIf expansionary fiscal policy is used following a supply shock such as the one experienced during the Covid-19 pandemic, the expansionary fiscal policy will result in real GDP ________ and the price level ________. decreasing; increasing increasing; decreasing increasing; increasing decreasing; decreasinarrow_forwardSuppose the economy is in equilibrium at point B which is below the full-employment output of point D. If the government implements fiscal policy targeted at moving real GDP back to point D, but crowding out significantly reduces the effectiveness of the fiscal policy, the equilibrium point will likely end up closer to point Multiple Choice A B C Darrow_forward
- If the government were to implement a fiscal policy during a case of recession, all of these proposal are in line with the goal of fighting recession EXCEPT lowering income tax increasing government spending and lowering income tax increasing both government spending and income tax increasing government spending When 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 lagarrow_forwardplease answer the following question: 1. Automatic stabilizers:A) work without the need for decisions from Congress or the White House.B) require explicit actions each year by policy makers to become active.C) increase elections during recessions.D) increase aggregate demand during an economic boom.arrow_forwardIf the marginal propensity to consume is 0.9, then the tax multiplier will be: Group of answer choices impossible to determine. greater than 10. less than 10. zero, because there is no multiplier effect from taxes.arrow_forward
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