Lectuy! incerOutwOutv Q Econ Crow Q Econ Intro (245)Sign cc 2017A Outvols.org/access/content/group/49f983b1-b488-4f6d-abf0-d1 fb140a9df6/Homework%20Sets/HW7.pdfEcon 105HW 7Study QuestionsNote: in this homework, "New Classical Theory" means the economic theory that opposes Keynes.1) Explain, step by step, the "Crowding Out" mechanism when the government tries to fight a recessionwith expansionary Fiscal Policy. Use appropriate graphs. What are the important implications of thiseffect as argued by New Classical theory?

Crowding out occurs when expansionary fiscal policy causes the interest rates to rise, thereby…

1) Explain, step by step, the "Crowding Out" mechanism when the government tries to fight a recession with expansionary Fiscal Policy. Use appropriate graphs. What are the important implications of this effect as argued by New Classical theory?

1) Explain, step by step, the "Crowding Out" mechanism when the government tries to fight a recession with expansionary Fiscal Policy. Use appropriate graphs. What are the important implications of this effect as argued by New Classical theory?

ENGR.ECONOMIC ANALYSIS

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Chapter1: Making Economics Decisions

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Concept explainers

Fiscal Policy and Money Market

Fiscal policy is one of the important tools that is used by the government to control inflation or aggregate demand in the economy. Under this policy, there are two rules which are used by the government, one is the expenditure of the government and the other is the taxation or income of the government which it collects from the public.

Question

Lectu
y! incer
Outw
Outv Q Econ Crow Q Econ Intro (245)
Sign cc 2017
A Outv
ols.org/access/content/group/49f983b1-b488-4f6d-abf0-d1 fb140a9df6/Homework%20Sets/HW7.pdf
Econ 105
HW 7
Study Questions
Note: in this homework, "New Classical Theory" means the economic theory that opposes Keynes.
1) Explain, step by step, the "Crowding Out" mechanism when the government tries to fight a recession
with expansionary Fiscal Policy. Use appropriate graphs. What are the important implications of this
effect as argued by New Classical theory?

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34. Discretionary fiscal policy refers to A) deliberate government efforts to stabilize the economy through government spending and taxes. B) the use of automatic stabilizers and intervention policies to stabilize the economy. C) any government policy that requires a lag period of at least three months. D) the deliberate use of government spending and taxes to complement the effects of monetary policy in an effort to stabilize the economy. 35. An inflationary gap can be closed with A) using an expansionary monetary policy. B) using a policy action such as a reduction in taxes. C) using a policy action such as a reduction in government purchases. D) imposing price controls to prevent prices from rising. 36. The term “crowding out” refers to the phenomenon that occurs when increased government spending A) raises the price level and reduces consumption. B)…
a) What are the three fiscal policy tools and how would each be used to counter a contractionary gap? b) True or False and explain: Fiscal Policy is effective at reducing the duration of an economic contraction. c) True or False and explain: Households always react to tax changes in a predictable manner.
20)Using the short-hand symbols G, Y, Md, r and I to demonstrate the effects of an expansionary fiscal policy.
In which of the following circumstances is expansionary fiscal p In which of the following circumstances is expansionary fiscal policy more likely to lead to a short-run increase in investment? Explain.a. When the investment accelerator is large or when it is small?b. When the interest sensitivity of investment is large or when it is small?
a) Suppose that there are no crowding-out effects and the MPC is 0.8. By how much must the government increase expenditures shift the aggregate-demand curve right $10 billion? b. The model of Long-run Growth, proposes that fiscal policy can have lasting effects on savings, investment, and economic growth. On the other hand, the model of Aggregate Demand-Aggregate Supply suggests that the only long run effect of fiscal policy is an increase in the price level. How could you use the Aggregate Demand and Aggregate Supply model for a more accurate description of the short-run and long-run effects of an increase in government spending? Could you distinguish between different uses of government expenditures to predict their effects on prices and output?
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. 160 Price Level 140 120 100 80 60 40 20 0 Fiscal Policy LRAS AS 80 160 240 320 400 480 560 640 720 800 AD AD₁ Real GDP (billions of dollars) billion 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. If the MPC is 0.75, 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 0.9. 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.
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Question 14/28 > NEX A BOOKMARK 14 MULTIPLE SELECT: If the government decides to pursue a expansionary policy, which of the following options could it use? Pick all that apply. A Tax cuts B Tax increases c Spending cuts D Spending increases DELL @ # & 1 3 4 7 8. W e r y d f k 个