MACROECONOMICS >C< W/MYECONLAB
18th Edition
ISBN: 9781323886038
Author: Pearson
Publisher: Pearson Custom Publishing
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Question
Chapter 9, Problem 3.1P
To determine
Accumulated debt and size of budget.
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Assume you are the Minister of Finance and Economic Planning for Ghana, in charge of Fiscal Policy. The Research Director of the Ministry brought you the following data on Ghana for the previous fiscal year, 2021. An examination of the data reveals that, during the fiscal year 2021, households in Ghana saved 20% of their disposable income (Yd) and spent the rest on consumption. In addition, GH¢5,000.00 was spent on Consumption expenditure (C), which is independent of income and Gross Private Investment (I) was GH¢7,000.00. Total Government expenditure (G) which stood at GH¢8,000.00 was supposed to be financed by a lump sum tax of GH¢2,000.00 (independent of income) and a proportional tax rate of 25% of national income. Exports (X) stood at GH¢2,500.00. In addition, the country’s import (M) during the previous fiscal year comprises of GH¢1,000.00 which was independent of the country’s national income and 10% which was dependent of the country’s national income. Given these data on Ghana…
If 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; decreasin
Increasing taxes to reduce national debt is more damaging to the economy than spending reforms because
Tax hikes are much easier to implement and more successful at reducing debt in the long-run but lead to crowding-in, lower debt to GDP ratio, less small business formation hurting economic growth and reducing tax revenue through the Laffer curve effect.
Tax hikes harm economic recovery slowing growth, reducing GDP by more than the tax revenue gained, while increasing unemployment and the need for more government spending, and thus are self-defeating.
Tax hikes shift aggregate demand and aggregate supply left, but spending reforms do not.
4. All of the answers are correct.
Chapter 9 Solutions
MACROECONOMICS >C< W/MYECONLAB
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