Macroeconomics: Private and Public Choice
15th Edition
ISBN: 9781305176799
Author: Gwartney
Publisher: Cengage
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Chapter ST4, Problem 3CQ
To determine
Determine the difference between Keynes and Hayek on the role of savings in the economy.
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Chapter ST4 Solutions
Macroeconomics: Private and Public Choice
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- In country X, the unemployment rate is 13%, the inflation rate is 16% and the GDP growth rate is 3%. The goal is 5-5-5, i.e., 5% inflation rate, 5% unemployment rate and 5% GDP growth. Assume that you are the Minister of Economics. Do you think you can achieve this goal using a single policy instrument? Why or why not? Which policy or policy mix would you use to achieve the 5-5-5 goal? Please explain the policy or the policy mix, clarify the policy instrument you would use, and discuss how it/they would work to achieve the goalarrow_forwardIn country X, the unemployment rate is 13%, the inflation rate is 16% and the GDP growth rate is 3%. The goal is 5-5-5, i.e., 5% inflation rate, 5% unemployment rate and 5% GDP growth. Assume that you are the Minister of Economics. Do you think you can achieve this goal using a single policy instrument? Why or why not? Which policy or policy mix would you use to achieve the 5-5-5 goal? Please explain the policy or the policy mix, clarify the policy instrument you would use, and discuss how it/they would work to achieve the goalarrow_forwardCan governments use expansionary fiscal policy or expansionary monetary to effectively fight recessions? Why or Why Not?arrow_forward
- Do you think policy makers should attempt to stabilize the economy ? Why ?arrow_forward1) Explain what will happen in a nation that tries to solve a structural unemployment problem using expansionary monetary and fiscal policy. Draw one AD/ AS diagram, based on the Keynesian model, for what the nation hopes will happen. Then draw a second AD/ AS diagram, based on the neoclassical model, for what is more likely to happen (if drawing your answer is a challenge, please describe your answers in words and/or numbers). 2) Explain why the government might prefer to provide incentives to private firms to do investment or research and development, rather than simply doing the spending itself?arrow_forwardDescribe a situation in an economy that John Maynard Keynes would believe needs government support. Explain why.arrow_forward
- What were the monetary and fiscal policy responses to the Great Recession? Discuss their effectiveness and how the policy contributed to GDP growth.arrow_forwardThink back to August 6, 1945. The United States has just dropped an atomic weapon on the city of Hiroshima killing tens of thousands of Japanese and devastating the infrastructure. A Keynesian at that time might conclude that there is a silver lining in the destruction, as economic prosperity will result. Evaluate the logic of this claim in a few sentences.arrow_forwardLike any economic crisis, unemployment rises, aggregate income falls, and tax collections drop during the Great Recession. While unemployment rises, safety net spending rises. To stabilize the economy, the government appears to have just two options: harsh austerity (reduce spending) or more borrowing. It is difficult to defend cuts in federal government programs, especially those that provide a minimum standard of living for the poor, but increasing indebtedness hurts the economy. In a few words, analyze Costs of eliminating the budget deficit solely through (1) personal tax increases, and/or (2) through spending cut by decreasing in transfer payments (i.e., Social Security, Medicare and Medicaid) and in discretionary spending (such as defense and education budgets)arrow_forward
- The two principles that make a person a “Keynesian” consist of the ideology that the private economy may not reach full employment and that government spending can spur the economy into filling the gap. Give two examples that may be applied to the real world.arrow_forwardAccording to Keynes, what are the major sources of economic instability? Fiscal policy is spending and taxation of the executive branch of the federal government; in recessionary times, what initiatives in spending and/or taxation are going to help the economy?arrow_forwardLike any economic crisis, unemployment rises, aggregate income falls, and tax collections drop during the Great Recession. While unemployment rises, safety net spending rises. To stabilize the economy, the government appears to have just two options: harsh austerity (reduce spending) or more borrowing. It is difficult to defend cuts in federal government programs, especially those that provide a minimum standard of living for the poor, but increasing indebtedness hurts the economy. In a few words, analyze the Long-run costs of high national debt.arrow_forward
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