2. Fiscal policySuppose a hypothetical economy is currently in a situation of deficient aggregate demand of $64 billion. Four economists agree that expansionaryfiscal policy can increase total spending and move the economy out of recession, but they are debating which type of expansionary policy should beused.Economist A believes that the government spending multiplier is 8 and the tax multiplier is 4. Economist B believes that the government spendingmultiplier is 4 and the tax multiplier is 2.Compute the amount the government would have to increase spending to close the output gap according to each economist's belief. Then, for eachscenario, compute the size of the tax cut that would achieve this same effect.Policy Options for Closing Output GapIncrease in SpendingTax Cut(Billions of dollars)Spending Multiplier(Billions of dollars)Tax Multiplier4Economist A8Economist B42Economist C favors increases in government spending over tax cuts. This means that Economist C likely believes that:YO6:344/29/20 Homework (Ch 23)Compute the amount the government would have to increase spending to close the output gap according to each economist's belief. Then, for eachscenario, compute the size of the tax cut that would achieve this same effect.Policy Options for Closing Output GapIncrease in SpendingTax CutSpending Multiplier Tax Multiplier(Billions of dollars)(Billions of dollars)Economist A84Economist B42Economist C favors increases in government spending over tax cuts. This means that Economist C likely believes that:Government purchases increase aggregate demand by stimulating investment.O Part of a dollar in tax cuts may be saved rather than spent and thus does not fully contribute to aggregate demand.Economist D argues that it is not possible to move the economy out of recession by increasing government spending. Which of the followingstatements is consistent with Economist D's belief?O A rise in government spending does not crowd out private sector spending.O A rise in government spending completely crowds out private sector spending.OO

Fiscal policy is the use of government spending and taxation to influence the economy.. Fiscal…

Compute the amount the government would have to increase spending to close the output gap according to each economist's belief. Then, for each scenario, compute the size of the tax cut that would achieve this same effect. Policy Options for Closing Output Gap Increase in Spending Tax Cut Spending Multiplier Tax Multiplier (Billions of dollars) (Billions of dollars) Economist A 8 4 Economist B 4 2 Economist C favors increases in government spending over tax cuts. This means that Economist C likely believes that: O Government purchases increase aggregate demand by stimulating investment. O Part of a dollar in tax cuts may be saved rather than spent and thus does not fully contribute to aggregate demand. Economist D argues that it is not possible to move the economy out of recession by increasing government spending. Which of the following statements is consistent with Economist D's belief? O A rise in government spending does not crowd out private sector spending. O A rise in government spending completely crowds out private sector spending.

Compute the amount the government would have to increase spending to close the output gap according to each economist's belief. Then, for each scenario, compute the size of the tax cut that would achieve this same effect. Policy Options for Closing Output Gap Increase in Spending Tax Cut Spending Multiplier Tax Multiplier (Billions of dollars) (Billions of dollars) Economist A 8 4 Economist B 4 2 Economist C favors increases in government spending over tax cuts. This means that Economist C likely believes that: O Government purchases increase aggregate demand by stimulating investment. O Part of a dollar in tax cuts may be saved rather than spent and thus does not fully contribute to aggregate demand. Economist D argues that it is not possible to move the economy out of recession by increasing government spending. Which of the following statements is consistent with Economist D's belief? O A rise in government spending does not crowd out private sector spending. O A rise in government spending completely crowds out private sector spending.

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 1.5P: Explain the difference between the government purchases multiplier and the net tax multiplier. If...

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Question

2. Fiscal policy
Suppose a hypothetical economy is currently in a situation of deficient aggregate demand of $64 billion. Four economists agree that expansionary
fiscal policy can increase total spending and move the economy out of recession, but they are debating which type of expansionary policy should be
used.
Economist A believes that the government spending multiplier is 8 and the tax multiplier is 4. Economist B believes that the government spending
multiplier is 4 and the tax multiplier is 2.
Compute the amount the government would have to increase spending to close the output gap according to each economist's belief. Then, for each
scenario, compute the size of the tax cut that would achieve this same effect.
Policy Options for Closing Output Gap
Increase in Spending
Tax Cut
(Billions of dollars)
Spending Multiplier
(Billions of dollars)
Tax Multiplier
4
Economist A
8
Economist B
4
2
Economist C favors increases in government spending over tax cuts. This means that Economist C likely believes that:
Y
O
6:34
4/29/20

Homework (Ch 23)
Compute the amount the government would have to increase spending to close the output gap according to each economist's belief. Then, for each
scenario, compute the size of the tax cut that would achieve this same effect.
Policy Options for Closing Output Gap
Increase in Spending
Tax Cut
Spending Multiplier Tax Multiplier
(Billions of dollars)
(Billions of dollars)
Economist A
8
4
Economist B
4
2
Economist C favors increases in government spending over tax cuts. This means that Economist C likely believes that:
Government purchases increase aggregate demand by stimulating investment.
O Part of a dollar in tax cuts may be saved rather than spent and thus does not fully contribute to aggregate demand.
Economist D argues that it is not possible to move the economy out of recession by increasing government spending. Which of the following
statements is consistent with Economist D's belief?
O A rise in government spending does not crowd out private sector spending.
O A rise in government spending completely crowds out private sector spending.
O
O

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