17. Which of the following statements is true? any one of the answers is correct. The Fed should reduce the discount rate to combat economic downturn A $1 increase in government spending tends to raise GDP by more than $1 an increase in inflation rate tends to bring down real interest rates, holding everything constant

17. Which of the following statements is true? any one of the answers is correct. The Fed should reduce the discount rate to combat economic downturn A $1 increase in government spending tends to raise GDP by more than $1 an increase in inflation rate tends to bring down real interest rates, holding everything constant

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 3P

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Similar questions

What is the main advantage of automatic stabilizers over discretionary fiscal policy?
Under what general macroeconomic circumstances might a government use expansionary fiscal policy? When might it use contractionary fiscal policy?
In a recession, does the actual budget surplus or deficit fall above or below the standardized employment budget?
Specify whether expansionary or contractionary fiscal policy would seem to be most appropriate in response to each of the situations below and sketch a diagram using aggregate demand and aggregate supply curves to illustrate your answer: A recession. A stock market collapse that hurts consumer and business confidence. Extremely rapid growth of exports. Rising inflation. A rise in the natural rate of unemployment. A rise in oil prices.
Assume there is no discretionary increase in government spending. Explain how an improving economy will affect the budget balance and, in turn, investment and the trade balance.
What is the main reason for employing contractionary fiscal policy in a time of strong economic growth?
What is the main reason for employing expansionary fiscal policy during a recession?
What would happen if expansionary fiscal policy was implemented in a recession but, due to lag, did not actually take effect until after the economy was back to potential GDP?
What would happen if contractionary fiscal policy were implemented during an economic boom but, due to Lag, it did not take effect until the economy slipped into recession?
What is the difference between expansionary fiscal policy and contractionary fiscal policy?
Explain the difference between the government purchases multiplier and the net tax multiplier. If the MPC falls, what happens to the tax multiplier?
What are some practical weaknesses of discretionary fiscal policy?