All of the following are classical objections to the use of expansionary fiscal policy during a recession, EXCEPT O Cansical economists emphasize the importance of supply shocks in explaining the business cycle. Expansionary fiscal policy during recessions caused by supply shocks cannot stop a recession and only cause additional inflation O Casical economists are more lely to believe that the fiscal multiplier is greater than one, implying that expansionary fiscal policy has a poor rate of return in terms of generating short-run real GDP growth O The economy is quick to adjust during recessions, making expansionary fiscal policy unnecessary and possibly destabilizing O Espamionary fscal policy increases government debt, causes inflation, crowds out private investment, and will likely require taxes to increase at some point.

All of the following are classical objections to the use of expansionary fiscal policy during a recession, EXCEPT O Cansical economists emphasize the importance of supply shocks in explaining the business cycle. Expansionary fiscal policy during recessions caused by supply shocks cannot stop a recession and only cause additional inflation O Casical economists are more lely to believe that the fiscal multiplier is greater than one, implying that expansionary fiscal policy has a poor rate of return in terms of generating short-run real GDP growth O The economy is quick to adjust during recessions, making expansionary fiscal policy unnecessary and possibly destabilizing O Espamionary fscal policy increases government debt, causes inflation, crowds out private investment, and will likely require taxes to increase at some point.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose the short-run equilibrium level of real GDP is $4,400 billion and the MPC = 0.9. If full employment 1 (natural) real GDP is $5,000 billion, what fiscal policy action could the government undertake to put the economy at full-employment equilibrium, according to the simple Keynesian model? O Reduce government spending by $60 billion O Increase government spending by $60 billion O Reduce taxes by $60 billion O Increase taxes by $60 billion
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Assume that the federal government is attempting to counter a negative shock through fiscal policy. The federal government increases government spending by $350 billion. As a result of this policy change, the net change in total economic activity (including the increased government spending) is a decrease of $25 billion. Which of the following is most likely to be true? O the multiplier effect is larger than any crowding out effect O crowding out is not present O the increase in government spending led to a substantial increase in exports the government has a lot debt already and is likely to default
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