Expectation in Fiscal policy & Ricardian equivalence. One can argue thatmacroeconomics is essentially a story of a 'journey' from disequilibrium back toequilibrium. The recession caused by Covid that had forced many countries to usefiscal policy to compensate the shock and stimulate the economy is one example ofdisequilibrium. Cited from the Ministry of Finance website, the use of the governmentbudget to mitigate the impact of the Covid crisis was clearly stated: "The state budgetwill continue to work hard to protect the community through Covid 19 handling froma health perspective, especially during the implementation of the EmergencyCommunity Activity Restrictions (PPKM). This refocusing and sharpening ofpriorities is expected to help all communities in various sectors, especially the healthsector, in dealing with Emergency PPKM." (MOF-RI News Index, 7/5/2021).Questions:a. Based on the macro workhorse model, explain the 'journey' (mechanism) how aninitial disequilibrium can revert to equilibrium by using fiscal policy.b. Some argue that in the medium run, the expansionary effect of fiscal stimulusdisappears, bringing the output back to the initial level (the phenomenon of'Ricardian equivalence'). Explain the mechanism of the Ricardian fiscal policy.

The fiscal policy is decided by the government of the country. It means taxes or government…

a. Based on the macro workhorse model, explain the 'journey' (mechanism) how an initial disequilibrium can revert to equilibrium by using fiscal policy. b. Some argue that in the medium run, the expansionary effect of fiscal stimulus disappears, bringing the output back to the initial level (the phenomenon of 'Ricardian equivalence'). Explain the mechanism of the Ricardian fiscal policy.

a. Based on the macro workhorse model, explain the 'journey' (mechanism) how an initial disequilibrium can revert to equilibrium by using fiscal policy. b. Some argue that in the medium run, the expansionary effect of fiscal stimulus disappears, bringing the output back to the initial level (the phenomenon of 'Ricardian equivalence'). Explain the mechanism of the Ricardian fiscal policy.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Macmillan Learning . Suppose the government, in an effort to avoid an increase in the deficit, votes for a budget neutral tax cut policy. Assume the marginal propensity to consume (MPC) is equal to 0.75 and taxes are cut by $15 billion. Round answers to the nearest billion, and specify decreases as a negative number. By how much will government spending change? change in government spending: S What is the resulting change in the equilibrium level of real GDP? change in equilibrium level of real GDP: $ billion billion
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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 changing taxes to reduce the burden of this recession. Fiscal Policy Instructions: Enter your answer as a whole number. If you are entering a negatlve number Include a minus sign. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrilum? $, billion b. If the MPC is 0.6 , how much do taxes need to change to shift aggregate demand by the amount you found in part a? $, billion Suppose Instead that the MPC is 0.8 . c. How much does aggregate demand and taxes need to change to restore the economy to Its long-run equilibrlum? Aggregate demand needs to change by $ billion and taxes need to change by $ billion.
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