Consider two policies, a tax cut that lasts for only 2 years and a tax cut that is expected to be permanent. Which policy will stimulate greater spending by consumers? Which policy will have the greater impact on aggregate demand? Select one: a. permanent tax cut; 2-year tax cut b. permanent tax cut; permanent tax cut c. 2-year tax cut; 2-year tax cut d. 2-year tax cut; permanent tax

Consider two policies, a tax cut that lasts for only 2 years and a tax cut that is expected to be permanent. Which policy will stimulate greater spending by consumers? Which policy will have the greater impact on aggregate demand? Select one: a. permanent tax cut; 2-year tax cut b. permanent tax cut; permanent tax cut c. 2-year tax cut; 2-year tax cut d. 2-year tax cut; permanent tax

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter30: Government Budgets And Fiscal Policy

Section: Chapter Questions

Problem 38CTQ: Why is spending by the U.S. government on scientific research at NASA fiscal policy while spending...

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Q1
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1. Consider an economy with the following situation: C = 50 +0.8 Yd =100;T= 100 G =150 a. Solve for Y, C, S b. How much is investment and government multiplier? Tax multiplier? c. Suppose full employment income is 900. Is this an inflationary or deflationary gap? How much is the gap? d. To eliminate the gap, the government decides to change its expenditure G. By how much should G change? Show that income AE or Ye is now 900 after the change in G. e. If the government decides to adopt balanced budget spending, by how much G and T will change to reach full employment output or income?
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1. Why is a $100 billion increase in government spending on goods and services more expansionary than a $100 billion decrease in taxes?