Policymakers who want to stabilize the economy must decide how much to change the money supply, government spending, or taxes. True or False: One of the reasons why it is difficult for policymakers to choose the appropriate strength of their actions is that the impact of a change in policy on aggregate demand is often too fast. True False The problem of time inconsistency applies to fiscal policy as well as to monetary policy. Suppose the government announced a reduction in taxes on income from capital investments, like new factories. If investors believed that capital taxes would remain low, the government's action would result in a capital stock. larger/smaller After investors have responded to the announced tax reduction, the government can get more tax revenue by capital investments. taxes on income from increasing/decreasing True or False: Given your answer to the previous part, investors would not believe the government's announcement.

Policymakers who want to stabilize the economy must decide how much to change the money supply, government spending, or taxes. True or False: One of the reasons why it is difficult for policymakers to choose the appropriate strength of their actions is that the impact of a change in policy on aggregate demand is often too fast. True False The problem of time inconsistency applies to fiscal policy as well as to monetary policy. Suppose the government announced a reduction in taxes on income from capital investments, like new factories. If investors believed that capital taxes would remain low, the government's action would result in a capital stock. larger/smaller After investors have responded to the announced tax reduction, the government can get more tax revenue by capital investments. taxes on income from increasing/decreasing True or False: Given your answer to the previous part, investors would not believe the government's announcement.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 5P

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What is a potential problem with a temporary tax increase designed to increase aggregate demand it people know that it is temporary?
Look at Figure 3. Assume this aggregate demand diagram represents an economy with government, where: a = exogenous consumption b = the marginal propensity to consume t = the tax rate |= investment G = government spending Y = income Figure 3 Aggregate AD, demand AD, 45° Income Select the option that describes a possible scenario shown by the shift from AD, to AD, in Figure 3. Select one: O Rise in tax rate and rise in government spending. O Rise in tax rate and fall in government spending. O Fall in tax rate and fall in government spending. O Fall in tax rate and rise in government spending. ( Previous page Next page > PHILIPS
TRUE - OR - FALSE Using fiscal policy to increase aggregate demand may have undesirable inflationary consequences. O True O False
QUESTION 20 Consider an economy that is producing an aggregate output of Y2 shown in the figure below. The economy fäces can be closed by Aggregate price level which fiscal policy. LRAS SRAS AD2 AD1 AD Y2 Yp Y1 Real GDP Oa. an inflationary gap; expansionary O b-a recessionary gap; expansionary Oc a recessionary gap; contractionary O d an inflationary gap; contractionary
P PE ж LRAS YN SRAS AD Y Consider the graphfor this and the next two questions. Assume the following graph depicts the situation in the US right before the financial crisis that recently engulfed the USA. Which curve would you shift in the graph to explain the initial impact of the financial crisis? Indicate the new position of the economy and what it implies. Prescribe a fiscal policy (contractionary or expansionary) policy you will use to bring the economy to its long-term full employment state.
SRAS PL AD2 AD Y, Y2 REAL GDP The Aggregate Demand Model shows an increase in Aggregate Demand or GDP, Which type of Fiscal Policy was used and why? O Contractionary Policy to increase GDP and Increase Inflation O Contractionary Policy to decrease GDP and lower the unemployment rate O Expansionary Policy to raise GDP and lower the unemployment rate O Expansionary Policy to raise GDP and lower Inflation PRICE LEVEL
The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by increasing government purchases to reduce the burden of this recession. Price Level 160 140 LA 120 100 80 60 40 20 0 Fiscal Policy LRAS AD₁ Real GDP (billions of dollars) billion AS 80 160 240 320 400 480 560 640 720 800 AD O Instructions: Enter your answers as a whole number. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? billion B b. If the MPC is 0.6, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? Suppose instead that the MPC is 0.75. c. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and government purchases need to change by $ billion.
Rea Which of the following is true according to mainstream economics? O Ifa balanced budget amendment to the Constitution were ratified, we should expect the Federal Reserve and Monetary Policy to be less important OIf a balanced budget amendment to the Constitution were ratified, we should expect Fiscal Policy to become more effective three of the answers listed are correčt O Ifa balanced budget amendment to the Constitution were ratified, we should expect worse recessions If a balanced budget amendment to the Constitution were ratified, we should expect milder recessions 05:24 troduction A ENG 8°C O 23-12-2021 P Type here to search SUS prt sc f11 f12 pause break delete insert f9 f10 f8 ロ/京 f3 f4 f5 f6 f7 esc sysrq & backspace 2 3 4 5 6 7 { } Q E Y U P. 86 2T %23
When the economy is in a recession, the government can use expansionary iscal policy to stimulate and encourage économic growth. Which of the following scenarios represent expansionary fiscal policies from both a supply perspective and a demand perspective? Choose one or more: OA The Federal Reserve increases the money supply and lowers the interest rate while the government simultaneously reduces future taxes. OB. The government lowers tax rates and issues a partial refund of taxes that have already been paid. OC The government raises tax rates and reduces payments of unemployment benefits. OD The government lowers tax rates and undertakes a replacement.of old bridges and roads. Suppose that, during a recession, the government borrows money to provide free wireless Internet access in urban areas. Whichof the following statements are correct? Choose one or more: RA This policy will likely be accompanied by an impact lag as the policy takes time to make its way to the people. O B. The…
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