4) Suppose an economy is producing real GDP of $600 billion. Potential GDP is equal to $540 billion, and the MPC is equal to 0.6. i)What kind of a gap (or problem) is this country experiencing? ii) What policy action do you suggest the government to take to eliminate the gap? State both the specific type of policy action and its size. Show your work for partial credit.
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4) Suppose an economy is producing real
MPC is equal to 0.6.
i)What kind of a gap (or problem) is this country experiencing?
ii) What policy action do you suggest the government to take to eliminate the gap? State both the
specific type of policy action and its size. Show your work for partial credit.
Step by step
Solved in 4 steps
- Mention a type of fiscal policy or monetary policy that is currently being implemented. Then discuss how government spending, taxes, or interest rates are being changed.What is the best combination of fiscal policies and monetary policies for a country like Japan whose price levels are increasing while unemployment is being controlled? a.None of the choices is correct b.Decrease taxes, decrease government spending and decrease money supply c.Decrease taxes, increase government spending and increase money supply d.Increase taxes, decrease government spending and decrease money supplyThe economy is at full employment, but the government is disappointed with the growth rate of real GDP. It wants to increase real GDP growth by stimulating investment. At the same time, it wants to avoid an increase in the price level. a.Suggest a combination of fiscal and monetary policies that will achieve the government’s objective. b.Which policy would you recommend that the government adopt? c. Explain the mechanisms at work under your recommended policy. d.What is the effect of your recommended policy on the composition of aggregate demand? eWhat are the short-run and long-run effects of your recommended policy on real GDP and the price level?
- Will Increase in government spending financed by borrowing help promote a strong recovery from a severe recession? Why or why not?directions:Use the given scenarios and the information you have learned about Fiscal and Monetary policy to complete the questions that follow Over the past 3 years, prices in Belarus have risen by 4%, as overall economic growth has increased by 5% while unemployment rates are 1.3%. Aram is finding that all goods, even necessities cost more at the stores. He is worried he may have to cut back on certain purchases. Congress and the President also notice this change in the economy and decide to take steps to correct it. They can use their 2 tools in the following ways: a. What will the federal government do to taxes? b. What will the federal government do to government spending? c. What impact will this have on consumer spending?Which economic policies affect a government's budget and include the increase or decrease the money supply?
- How is fiscal and monetary policy used by the Canadian government if the economy seems to be slipping into recession?What's wrong with this way of thinking? "When the government runs a budget deficit, it simply pays its bills by printing more money. As the newly printed money works its way through the economy, it waters down the value of paper money already in circulation. Thus, it takes more money to buy things. Budget deficits are the major cause of inflation."a) Why can't the government run a budget deficit in a one- period macroeconomic model? b) Why are government transfer payments not included in (expenditure-based) GDP?
- please answer the following question: 1. Suppose an economy is slowing and more and more people are losing their jobs and, therefore, paying less income taxes. If policy makers try to avoid a budget deficit by raising taxe rates, this would probablyA) help pull the economy out of a depression.B) make the economic slowdown worse.C) increase inflation.Can governments use expansionary fiscal policy or expansionary monetary to effectively fight recessions? Why or Why Not?If the government wanted to reduce inflation in the economy, it could: a. Increase income transfers b. Increase government spending c. Cut taxes d. Increase taxes