MACROECONOMICS
14th Edition
ISBN: 9781337794985
Author: Baumol
Publisher: CENGAGE L
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Question
Chapter 17, Problem 8DQ
A
To determine
To describe: The state of the monetary and fiscal policy under these circumstances.
B
To determine
To describe: the state of policies in contradictory mode.
C
To determine
To select: The best reason out of given two.
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In which of the following cases does the size of the government’s debt and deficit indicate potential problems for the economy? Explain your answer.
a) The government’s debt is relatively low, but the government is running a large budget deficit as it builds a high-speed rail system to connect the major cities of the nation.
b) The government’s debt is relatively high due to a recently ended deficit-financed war, but the government is now running only a small budget deficit.
c) The government’s debt is relatively low, but the government is running a budget deficit to finance the interest payments on the debt.
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Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.
Answer completely.
You will get up vote for sure.
Refer to the News Wire to answer three questions.
NEWS WIRE: FISCAL STIMULUS: TAX CUTS
Trump Tax Cuts Boost Spending
The Tax Cuts and Jobs Act of 2017 seems to be working. Although the lion's share of President Trump's tax cuts went to business, consumers got a tax break as well. For the average U.S. household, the tax cut amounts to roughly $40 a week in take-home pay. That may not sound like much, but with 130 million households, that extra income can pack some punch. According to the National Retail Federation, consumer spending was up 4.8 percent in the first six months of this year. And the government reports that GDP grew by 4.2 percent in the second quarter, the best performance since 2014. There may be other factors at work here, but tax-cut fueled consumer spending is certainly a big contributor.
Source: News accounts of September–October 2018.
Instructions: In part a, enter your response as a whole number. In parts b and c, round your responses to one decimal…
One of the main arguments against using Fiscal Policy is the crowding out effect. Suppose the government uses government purchases to stimulate the economy.
Explain quantitative easing?
If the Fed’s current policy is quantitative easing, do you think that there is a danger of the government’s current fiscal policy being crowded out? Why or Why not? Explanation required.
Knowledge Booster
Similar questions
- Please evaluate the following statement: When the U.S. federal government has a budget deficit—spending more than its current tax revenues—and covers the short-fall by issuing government bonds this will result in inflation. [Hint: Your answer may depend on who is buying these newly issued U.S. government bonds.]arrow_forwardDuring the 1990s, the federal budget moved from a deficit to a surplus. What factors accounted for this change? Were the budget surpluses of the late 1990s good for the economy? Would it have been better to have reduced taxes and balanced the budget during 1999-2000? Why or why not?arrow_forwardWhat kind of fiscal policy will you use to fight against inflation. Explain it briefly.arrow_forward
- How is the Social Security system currently influencing the size of the budget deficit? If it is not re-formed, how will Social Security influence the budget deficit a decade from now? Is this a cause for concern? Why or why not?arrow_forwardThe economy is experiencing negative GDP growth and high unemployment. Which fiscal policy action should the government implement in an attempt to fix this problem? A.) increase spending B.) raise taxes C.) increase the reserve requirement D.) decrease interest ratesarrow_forwardIf stability of the economy is the primary objective of Fiscal Policy, then an Annually Balanced Budget (Government Expenditures = Tax Revenues) is the best policy approach. True or False?arrow_forward
- Comment on either (a) the type of fiscal policy or monetary policy that is currently being implemented, or (b) the type of fiscal policy or monetary policy you think should be implemented. In your comment you might discuss how government spending, taxes, or interest rates are or should be being changed and why.arrow_forwardIf the government is running a fiscal deficit, it can only finance it through monetization. true or falsearrow_forwardWhat is the importance of fiscal policy during times of economic recession? What is the reason why fiscal policy should be in tune with monetary policy when the economy is in the recession phase? How important is the Central Bank in the financial market?arrow_forward
- Suppose we wanted to use fiscal policy (a change in taxes OR a change in government spending) in order to stimulate the economy. If we were concerned about the impact on the government’s budget deficit, which policy option should we choose? Explain your reasoning.arrow_forwardMultiple‐choice questions: Select one correct answer for each of the following. In your answer booklet, write down only the number of the question and next to it, the letter of the correct answer. Q.1.1 An increase in the budget deficit is the result of: (2) (a) Expansionary monetary policy; (b) Contractionary monetary policy; (c) Expansionary fiscal policy; (d) Contractionary fiscal policy. Q.1.2 Company tax is a: (2) (a) Progressive, direct tax; (b) Progressive, indirect tax; (c) Proportional direct tax; (d) Regressive indirect tax. Q.1.3 In the base year, a country produced 50 units of output at a price of R6,00 each for a nominal GDP of R300. This year it produces 60 units of output at a price of R8,00 each. What is the percentage change in real GDP since the base year? (2) (a) 5%; (b) 10%; (c) 20%; (d) 15%. Q.1.4 Which of the following statements about Fiscal Policy is INCORRECT? (2) (a) In order to combat inflation, the South African Reserve…arrow_forward
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