WEEK 13 ASSIGMENT ECO 252-02 W

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Feb 20, 2024

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Running head: FISCAL POLICY PART 2 WEEK XIII ASSIGMENT #11 Lucas M. Maccarini Principles of Macroeconomics Instructor: Ryan Kearns November 13, 2020 Coastal Carolina Community College ECO 252-02 W
FISCAL POLICY 2 11.1 Fiscal policy  Part 2: Expansionary Fiscal Policy - Study the charts below and answer the questions that follow. 1. Describe the changes in Japan’s inflation rate between 2005 and 2011. Given the above graphic of inflation, we observe that between 2005 and mid 2007 Japan experienced a deflation. Then early in 2008 spiked close to the desire rate of 2 % to later plunge once again into deflation values.
FISCAL POLICY 3 2. Describe the changes in Japan’s GDP growth rate between 2005 and 2011 Economic Growth depicted by its GDP was quite irregular for Japan between 2005 and 2011. The deflation experienced during those years clearly affected its GDP growth rate and the 2008 world economic crisis can easily be depicted with a contraction of almost 6 % at the end of 2008 followed by the logical bounce during 2009 but then plunging again throughout 2010. 3. Outline the likely changes to aggregate demand and/or aggregate supply in Japan that could account for the changes to inflation and GDP growth rates that you described in questions 1 and 2 above. Considering the effects of deflation lack of investment and consumption are changes that would certainly affect the AD and AS as households/consumers and firms will be relentless to spend expecting prices to be lower in the future. Therefore, recession and or potential rise in unemployment could certainly occur.
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FISCAL POLICY 4 4. Using an AD/AS diagram, illustrate the likely changes that contributed to the changes in inflation and GDP growth rates that you described above. If deflation occurs the AD will shift left due the lesser desire from households to spend assuming prices will be lower in the future 5. Assume the Japanese government wishes to implement discretionary fiscal policies to improve its inflation and GDP growth figures. Outline two policy options available to the government to achieve these aims. Two policies the government of Japan could implement are a tax reduction and the increase of government spending. These would aim to increase the aggregate demand and thus also increase the output. Therefore, helping to reduce the deflationary gap.
FISCAL POLICY 5 6. Show the desired effects of the government’s policies on the graph above. Describe the changes you illustrated in the box below. A government incentive to increase the AD would potentially shift the curve to the right, generating more output and potentially motivating producers to inject a bigger supply into the market if production costs remain low 7. Explain how the fiscal policy action you described in #5 would affect Japan’s government budget. The negative side effect of discretionary policy would be the potential for a lower budget since less taxes are entering the government arcs. It could also prompt the government to borrow more money to cover the increased gap in spending.
FISCAL POLICY 6 References O'Sullivan, A., Sheffrin, S. M., & Perez, S. J. (2020). 13 and 14. In Macroeconomics: Principles, applications, and tools . New York, NY: Pearson. Course Lectures 5 and 6 provided by Professor Kearns
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