10- Assume that the economy starts at an equilibrium output Y*,and interest rate 1*. Suggest a policy mix to achieve the following objectives. a) Increase Y while keeping i constant. b) Decrease fiscal deficit while keeping Y constant. c) Government wants to decrease the interest rate while keeping Y constant.

10- Assume that the economy starts at an equilibrium output Y,and interest rate 1. Suggest a policy mix to achieve the following objectives. a) Increase Y while keeping i constant. b) Decrease fiscal deficit while keeping Y constant. c) Government wants to decrease the interest rate while keeping Y constant.

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 1.7P

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7) Suggest a policy mix to achieve the following objectives: a. Increase Y while keeping i constant. b. Decrease the fiscal deficit while keeping constant. What happens to i? To investment?
1. If the government is required to balance the budget and the economy falls into a recession, which of the actions is a feasible policy response? - invest in infrastructure - cut spending equal to the reduction in tax revenue - cut taxes to encourage consumer spending - increase government spending to stimulate the economy 2. What is a likely consequence of this policy? - The negative consequences of the recession are magnified. - Consumer spending increases due to their ability to keep more of their after-tax income. - Unemployment falls due to the economic stimulus. - There is hyperinflation due to an increase in aggregate demand.
Questions:4. what is the government's current budget balance?billions of dollars
20. . If US economy moves into an expansion while producing more than potential GDP, then: a) government spending and tax revenue will increase because of automatic stabilizers. b) government spending and tax revenue will decrease because of automatic stabilizers. c) automatic stabilizers will increase government spending and decrease tax revenue. d) automatic stabilizers will decrease government spending and increase tax revenue.
2. Show graphically that tax cuts are a less effective fiscal policy tool the greater the sensitivity of investment to interest rates.
1- Assume that the economy starts at an equilibrium output Y*,and interest rate i* Suggest a policy mix to achieve the following objectives. a) Increase Y while keeping į constant. b) Decrease fiscal deficit while keeping Y constant. c) Government wants to decrease the interest rate while keeping Y constant. D(Ctrl) -
1. Suppose the economy has fallen into a recession (output level ?0), and the federal government wants to return the economy to its original level of output (?). Respond to each of the following questions using appropriate diagrams and explanations.(a) If policy makers can only use fiscal tools, what should they do?(b) If policy makers can only use monetary tools, what should they do? (c) What should they do if they want to return output to its original level but keep investment from changing?
1 As economies go into recession a) Government spending will decrease b) Tax revenue will decrease c) Budget deficits will decrease d) Unemployment rates will decrease 2 During a recession, which of the following would NOT be considered an automatic stabilizer? a) Decreased income tax revenues from falling incomes b) Decreased sales tax revenues from a falling amount of sales c) Increases in unemployment payments due to high unemployment rates d) An increase in government spending on infrastructure to stimulate the economy 3 Suppose a $100 billion increase in government spending has caused a total of $200 billion increase in spending. What is the marginal propensity to consume? a) MPC = 0.2 b) MPC = 0.5 c) MPC = 2.0 d) MPC = 5.0
5 Given a) Find the equation for IS and LM b) Find equilibrium output, the rate of interest, and investment. c) Find new equilibrium output, rate of interest and investment when government spending increase from $100 to $120 d) Explain the changes/effects of economy when there is an increase government expenditure L=0.20Y -10i M = 200 C = 60 + 0.80Yd Tx =100 I=150 -2i G = 100
2. Considering the recent pandemic situation, Consumers fear a recession, they start reducing consumption. How can the government counteract (what policy government can consider)? What are the shortcomings of such a policy (fiscal)? Explain one of them. Use a graph to illustrate your arguments.
2. Consider an economy described by the following income-expenditure model. The average propensity to consume is constant and equal to. The fiscal pressure is constant and equal to 1. Public transfers are equal to zero. Investment is I = 500. The budget of the State records a deficit D equilibrium level of output. 100. Calculate the
2. Assume the recessionary gap in two countries = 10 million Euros. The governments decide to fight the recession by increasing their spending. The following tables illustrate the result. Which country has the highest crowding out? * Country I Variable After The fiscal Policy Country II After The fiscal Policy Decreases By 20% Decreases By 10% Decreases By 70% Decreases By 80% O Country I O Country II Both are the same None of these